- The Washington Times - Friday, November 2, 2007

From combined dispatches

Exxon Mobil Corp., the world’s largest oil company, said yesterday that quarterly profit unexpectedly dropped the most in three years on reduced gasoline output and prices.

The report spurred declines by Chevron Corp. and other energy stocks and dragged major indexes lower. Exxon shares fell 3.8 percent to $88.50 in New York Stock Exchange composite trading. The stock has the largest weighting in the Standard & Poor’s 500.

Separately, the Alabama Supreme Court yesterday threw out nearly all of a record $3.6 billion verdict the state won against Exxon Mobil in a dispute over natural gas royalties.

In an 8-1 decision, the state’s highest court awarded Alabama $51.9 million in compensatory damages. The court threw out all punitive damages, which made up most of the verdict, the largest ever in Alabama.

The majority of the court said the state failed to prove fraud by Exxon Mobil and no punitive damages were due.

The state conservation department had sued the company, saying it intentionally underpaid for royalties due from natural gas wells the company drilled in state-owned waters along the Alabama coast. The company argued no fraud was involved, and the case was a routine contract dispute. An appeals court agreed.

Exxon’s third-quarter earnings per share fell 4 cents below the average of 16 analyst estimates compiled by Bloomberg after gas prices in the U.S. dropped almost 6 percent. As fuel prices slumped, oil rose above $80 a barrel for the first time, squeezing the gap between crude costs and gas and diesel prices. Narrower margins and disruptions to fuel output on three continents outweighed Exxon’s gains from record oil prices.

“High oil prices were a disaster for a company like Exxon with a large refining business because that means their raw material costs were incredibly high,” said Robert Sweet of Horizon Investment Services. “The pressure on profits could persist if oil prices remain high.”

Net income fell to $9.41 billion, or $1.70 a share, from $10.5 billion, or $1.77, a year earlier, Irving, Texas-based Exxon said. Revenue rose 2.8 percent to $102.3 billion, an all-time high.

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