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    Exxon, Shell Q2 Results Suffer From Recession Blues

    Meanwhile, Tesoro's quarterly results swing to net loss on lower volume and margins.

    NEW YORK -- The world's two largest energy companies, Exxon Mobil Corp. and Royal Dutch Shell Plc, recorded their largest declines in second-quarter profit in more than a decade, due to slumping fuel demand that was a result of the record drop in oil prices, Bloomberg News reported.

    ExxonMobil's net income fell 66 percent to $3.95 billion, according to a statement cited by Bloomberg News. The energy giant's profit was the lowest for any quarter in more than five years, while revenue dropped 46 percent to $74.5 billion.

    "Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products," ExxonMobil Chairman Rex W. Tillerson said in a statement.

    ExxonMobil's downstream earnings plummeted to $512 million from $1.046 billion in the second quarter of 2008, primarily due to lower refining margins that more than offset stronger marketing margins, the company stated.

    The company's U.S. downstream unit recorded a loss of $15 million, a $308 million drop compared to the second quarter 2008.

    Shell's profit slid 67 percent to $3.8 billion. The second quarter marked the third straight quarter of declines for both companies, according to the report.

    "Prices are down big time, and that pulled down results across the board," William Andrews, manager of $7 billion in assets at C.S. McKee & Co. in Pittsburgh, including Shell stock, told Bloomberg News. "You’re comparing against a quarter when prices were over the moon, so everybody looks bad."

    Demand for petroleum fuels dropped at more than five times the rate of the drop in worldwide oil output during the second quarter, according to the International Energy Agency in Paris, which was cited by Bloomberg News. The world’s crude oil appetite will not reach 2008 levels before 2011, the agency said.

    "Energy demand is weak," Shell Chief Executive Officer Peter Voser told analysts on a conference call attended by Bloomberg News. "There is excess energy-supply capacity in the world today and industry costs remain high. Conditions are likely to remain challenging for some time, and we are not banking on a quick recovery."

    In other earnings news, San Antonio-based Tesoro Corp. saw a net loss of $45 million in the second quarter 2009, compared to net earnings of $4 million, in the year-ago quarter.

    Operating income during the quarter totaled $11 million, down from the $74 million generated in the second quarter of 2008 primarily due to lower gross margins and decreased throughput, which were only partially offset by lower operating costs, the company stated.

    In its retail segment, Tesoro saw operating income of $4 million during the second quarter, an increase from the operating loss of $11 million in the comparable period. Retail fuel sales during the quarter were unchanged at 343 million gallons, while margin per gallon increased from 12 cents in the second quarter of 2008 to 16 cents in the just ended quarter. Merchandise sales and margin dipped slightly to $56 million and 25 percent, respectively, during the second quarter 2009, compared to merchandise sales of $58 million and a margin of 26 percent in the second quarter 2008.

    "As we began 2009, we were prepared for a very difficult year, and in the second quarter it arrived," Bruce Smith, chairman, president and CEO, said in a statement. "Gasoline margins, which were strong in April, weakened in the quarter and dropped to half the April levels in July."

    Moving into the third quarter, Smith expected to continue to see difficult market conditions.

    "In July, record product inventories and narrow heavy-light crude oil differentials continued to hamper margins. We are prepared for this environment to persist. Already, we are seeing temporary closures and units running at less than full rates at a number of refineries," he said.

    Despite this, the company remains committed to its 2009 goals of lowering cash break-even costs, gaining sustainable improvements in its capture of available margins and funding its capital program through operating cash flow, he said.

    He added: "We believe that our markets and assets continue to hold competitive advantages, and our management team is prepared for both the political and consumer-related challenges that may lie ahead."

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