Exxon Mobil Corp.'s profit dropped 10 percent in the third quarter as higher crude prices failed to offset lower natural gas prices and refining and chemical margins.
The profit decline came even as Exxon Mobil set a U.S. record for quarterly revenue.
But the earnings figure was below expectations of Wall Street analysts, and the energy company's shares fell 2.2 percent in afternoon trading.
Exxon Mobil said net income declined to $9.41 billion (6.52 billion EUR), or $1.70 (1.18 EUR) per share, in the July-September period from $10.49 billion (7.27 billion EUR), or $1.77 (1.23 EUR) per share, a year ago.
Its profit in the third quarter of 2006 was the second-largest ever recorded by a publicly traded U.S. company.
Revenue at the Irving, Texas-based company rose to a record for gross sales of $102.3 billion (70.93 billion EUR) from $99.59 billion (69.05 billion EUR) in the third quarter of 2006. The previous mark - also owned by Exxon Mobil - was $100.7 billion (69.82 billion EUR) in the third quarter of 2005, according to Standard & Poor's Senior Index Analyst Howard Silverblatt.
On average, analysts expected the company to earn $1.75 (1.21 EUR) per share in the latest quarter on revenue of $112.97 billion (78.33 billion EUR).
Its shares fell $1.99 to $90 in afternoon trading.
Despite Exxon Mobil's lower year-over-year profit, Vice President of Investor Relations Henry Hubble said the company's fundamentals remain strong, and it continues to aggressively explore and tap new sources of hydrocarbons.
He said the company has launched six major oil and gas projects since the start of the year, in regions such as the Middle East, Europe and Africa. During the quarter, Exxon Mobil also was the high bidder for Gulf of Mexico leases totaling more than 70,000 acres.
The company spent $5.4 billion (3.74 billion EUR) on capital and exploration projects in the third quarter, an 8 percent increase from 2006.
"These milestones continue to reflect the geographic diversity and strength of our industry-leading upstream portfolio," Hubble said.
But volatile commodity prices and other factors hurt the bottom line in the most recent quarter.
Exxon Mobil, which produces 3 percent of the world's oil, said earnings from its exploration and production arm fell about 3 percent - to $6.29 billion (4.36 billion EUR) from $6.49 billion (4.5 billion EUR) a year ago. The drop largely reflects lower natural gas prices and higher operating costs, which were offset somewhat by higher realized crude oil prices.
Production on an oil-equivalent basis was down 2 percent from a year ago - a concern for a company that generates more than two-thirds of its earnings from oil and gas production.
Part of the production decline was from the loss earlier this year of Exxon Mobil's Venezuelan operations. Exxon Mobil has filed a request for international arbitration in its dispute with Venezuela over the nationalization of its Cerro Negro heavy oil project - one of four heavy oil projects in which President Hugo Chavez's government assumed majority control in May.
Like most of its competitors, Exxon Mobil said earnings were hurt by lower global refining and marketing margins. Earnings at its refining and marketing unit were $2 billion (1.39 billion EUR) in the July-September period, off 27 percent from the $2.74 billion (1.9 billion EUR) it earned a year ago.
Oil prices have surged in recent months, and crude futures have hit record levels, but lower refining margins, increased costs and other factors have hindered third-quarter earnings at some of the world's major oil companies.
Exxon Mobil joins two other oil majors that have reported lower third-quarter profits versus a year ago, citing weakness in their refining businesses. Last week, BP PLC, Europe's second-largest oil company, posted a 29 percent drop in third-quarter profit, while ConocoPhillips, No. 3 among U.S. oil companies, said its quarterly earnings fell 5 percent.
Royal Dutch Shell PLC, reporting July-September results last Thursday, said its net profit rose 16 percent, but it warned the underlying performance of its refining operations was weaker than it appeared.
While the price of a barrel of oil in the third quarter was in line with year-ago prices, refining margins - the difference between what refiners pay for oil and what they're paid for the products they make from it - have tightened substantially in recent months.
Exxon Mobil noted, for example, that the average retail price for regular gasoline fell roughly 45 cents a gallon between the end of May and mid-October.
Chevron, the second-largest U.S. oil company, is scheduled to report third-quarter earnings Friday.
Exxon Mobil said it bought 90 million shares of its common stock in the quarter at a cost of $7.8 billion (5.41 billion EUR). Roughly $7 billion (4.85 billion EUR) of that amount was dedicated to reducing the number of shares outstanding; the balance was used to offset shares issued as part of the company's benefit plans.
For the first nine months of 2007, Exxon Mobil reported net income of $28.95 billion (20.07 billion EUR), or $5.15 (3.57 EUR) a share, compared with income of $29.25 billion (20.28 billion EUR), or $4.86 (3.37 EUR) a share, in the year-ago period. Revenue was up slightly to $287.9 billion (199.61 billion EUR) from $287.6 billion (199.4 billion EUR).
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