Exxon Mobil reported the second-best quarterly profit in its history yesterday - and investors could barely hide their disappointment.
Exxon, the world's largest publicly traded oil company, said its net income rose 17 percent in the first quarter, buoyed by high oil prices. But that was less than Wall Street expected, and Exxon's shares fell 3.6 percent, to close at $89.70.
Moreover, the company's report displayed fresh difficulties in its core business, with oil production dropping sharply compared with the quarter a year earlier.
Crude oil prices have flirted with records, lifting profits throughout the industry to new heights. But they are also masking an increasingly difficult business environment, marked by rising costs, tightening access to oil fields and declining profit for refineries.
For the big oil companies, extraordinary profits have turned into a somewhat incongruous embarrassment of riches. Rising gasoline and diesel fuel prices have created resentment among drivers and truckers against the oil companies that could especially resonate in an election year.
The high crude oil prices are translating into record retail gasoline costs in the United States. Regular gasoline was selling yesterday for an average of $3.62 a gallon, according to AAA, the automobile club, up from less than $3 a year ago. Diesel fuel averaged $4.25 a gallon.
Few energy specialists expect oil prices to drop much this year. Oil for June delivery on the New York Mercantile Exchange fell 94 cents yesterday, to $112.52 a barrel.
While energy companies have little control over the price of oil, which is set on commodities markets, they have benefited immensely from the rally. In the past week, BP, Royal Dutch Shell and ConocoPhillips all reported big jumps in their profits.
Exxon is admired in the industry for its spending discipline and skill at managing complex projects. But this quarter, its profits fell short of Wall Street forecasts. Exxon's net income was $10.9 billion, or $2.03 a share, up from $9.3 billion, or $1.62 a share a year earlier.
Analysts surveyed by Thomson Financial had forecast $2.13 a share.
That level of profitability still makes the quarter Exxon's second most lucrative, after the record $11.7 billion it earned in the fourth quarter of 2007. Last year, the company reported a profit of $40.6 billion, the biggest annual profit by an American company.
Still, Brian M. Youngberg, an oil analyst at Edward Jones, noted: "Investing comes down to expectations and the expectations were pretty high, especially after BP and Shell reported pretty good outlooks. And Exxon didn't quite deliver."
In particular, investors focused on a sharp production drop caused by a government takeover of Exxon's assets in Venezuela, the decline of oil fields in the United States and lower quantities in West Africa.
Exxon's oil output dropped almost 10 percent in the first quarter, to 2.47 million barrels a day, compared with the quarter last year, as production fell in every region except Russia and the Caspian.
Even disregarding the effect of the events in Venezuela, Exxon's production fell 6 percent.
Its output of natural gas rose by a little more than 1 percent, to 10.2 billion cubic feet a day.
Paul Sankey, an analyst with Deutsche Bank AG, commented in a note: "Deeply concerned about future energy supply, the market wants growth, growth and growth. Exxon Mobil does not offer that right now."
Part of the drop in production came from the structure of some international contracts, under which oil companies must give a larger share of the oil they produce back to the host governments as prices rise.