The Wall Street Journal: Exxon, Shell Profits Climb Sharply: "The company, which earlier this month disclosed budget overruns and a half-year delay at its massive Sakhalin II gas project in Russia, said yesterday that production at its giant offshore oil field in Nigeria, Bonga, would be delayed once again, though just by a few months.": Friday 29 July 2005

In the latest sign of the oil industry's current success and future challenge, Exxon Mobil Corp. and Royal Dutch Shell PLC said their second-quarter net income shot up more than 30% amid soaring oil prices, but both saw production fall as aging fields continued to decline.

Cash-rich Exxon also announced a further increase in its rate of share buybacks, its preferred method of rewarding shareholders, even as some investors renewed calls for a dividend boost. The company -- the largest U.S. company by market value, ahead of General Electric Co. -- said it will spend $5 billion in the third quarter on share buybacks, up from $3.5 billion in the second quarter and $2.5 billion in the first quarter.

CONFERENCE CALL   See a transcript of ExxonMobil's conference call, provided by Thomson StreetEvents (www.streetevents.com). (Adobe Acrobat Required.)   MORE ON EARNINGS   Bone up on major companies still to come in this summer's earnings season.

The results from Exxon and Shell, the world's No. 1 and No. 3 oil companies by market value respectively, reflect a basic reality for the industry: Commodity prices are high, driving up earnings, but grabbing the massive new supplies of fossil fuel necessary to sate the increasing global thirst for oil and natural gas has grown more difficult.

Exxon of Irving, Texas, said second-quarter net income rose 32% to $7.64 billion, or $1.20 a share, up from net of $5.79 billion, or 88 cents a share, a year earlier. Still, it was less than the $7.86 billion the company earned in the first quarter of 2005 and less than the $8.42 billion it earned in last year's fourth quarter. Revenue rose 25% to $88.57 billion from $70.69 billion.

Exxon's second-quarter results included a $200 million charge it took in connection with a lawsuit brought against it by gasoline-station operators.

At 4 p.m. in New York Stock Exchange composite trading, Exxon's stock price was up 40 cents at $60. Shell's Class A American depositary shares fell 34 cents to $60.33.

At Exxon, all parts of the business benefited from soaring commodity prices. The company's upstream earnings -- producing and selling crude oil and natural gas -- rose 28%, to $4.9 billion. Its downstream profit -- refining and marketing gasoline and other finished petroleum products -- rose 34%, to $2 billion. Its chemical earnings increased 34%, to $814 million.

But production fell 4.3% from a year earlier. Even excluding the effects of Exxon's sale of certain fields and its reduced allotments of oil and gas under production-sharing agreements with the governments that own certain fields, Exxon's total in the quarter dropped 2%. Higher oil output in West Africa and higher natural-gas output in Qatar were more than offset by declines from mature fields and other effects.

In coming months, Exxon expects enough of a production jump from some big projects, particularly in West Africa, that it will end the year with its production flat compared with 2004. Exxon and other big oil companies have dismissed concerns about production declines, saying they are confident new technology will find and pump out enough fossil fuel to meet the world's rising demand. After declining in the first quarter, Exxon's capital and exploration spending rose in the second quarter, to $4.5 billion, a 25% rise from a year ago. Projects operated by the company "that are key to future volume growth continue to be on budget and ahead of schedule," said Exxon's chairman and chief executive, Lee Raymond, in a statement.

In a note to investors yesterday, Paul Sankey, a Deutsche Bank analyst, was critical of the company. Referring to the production drop, he wrote, "the market will not like these volumes."

Some observers raised concerns about the company's decision not to take more-aggressive moves to give some of its cash to shareholders. They want Exxon to declare a one-time special dividend or at least raise its regular dividend. Exxon says it doesn't think a special dividend helps its long-term stock price, and earlier in the week it said it will keep its regular dividend flat.

At Shell, rising profit from higher oil prices was partially offset by the rising costs affecting the oil and gas industry as a whole. Net income rose 34% to $5.24 billion, or 78 cents a share, from $3.9 billion, or 57 cents a share, a year earlier. Shell's revenue rose 33% to $82.64 billion from $62.13 billion.

Shell's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.

Its results reflected a net charge of $545 million, including a $270 million charge related to mark-to-market losses for British gas contracts and a $226 million charge related to the divestment of power-generation assets.

Shell said total oil and gas production fell 1% to 3.5 million barrels of oil equivalent a day from 3.6 million a day a year earlier. Output increased 2% over the year-earlier period excluding divestments and the effects of the close-out of a large gas contract. The company said it would stick with its yearly production forecast of between 3.5 million and 3.8 million barrels a day.

The company, which earlier this month disclosed budget overruns and a half-year delay at its massive Sakhalin II gas project in Russia, said yesterday that production at its giant offshore oil field in Nigeria, Bonga, would be delayed once again, though just by a few months.

Write to Jeffrey Ball at jeffrey.ball@wsj.com