Updated from July 29Oil's surge helped ExxonMobil ( XOM), the world's largest energy company, post its best quarter ever Thursday and one of the most profitable three months in U.S. corporate history. Exxon said second-quarter earnings shot up 39% to $5.79 billion, or 88 cents a share, matching the Thomson First Call consensus. Revenue rose 24% to $70.69 billion. Earnings in the company's enormous exploration and production unit rose by more than $1 billion to $3.85 billion, reflecting a 1% increase in oil and equivalents production. In the company's downstream segment, earnings rose fivefold to $1.5 billion, reflecting higher refining margins offset by moderate weakness in marketing profitability. "ExxonMobil is basically clicking on all cylinders," said Oppenheimer analyst Fadel Gheit, who recommends the stock and also owns it himself. Gheit said all three of ExxonMobil's major businesses -- production, refining and chemicals -- are performing well in the current environment. With crude futures hitting $43.05 a barrel -- a level previously unseen on the New York Mercantile Exchange -- Exxon joined a slew of energy companies that have recently raced to the market with news of gushing profits. ConocoPhillips ( COP), for example, posted a 75% jump in second-quarter profits after worldwide oil prices hovered near the $35 mark in recent months. ConocoPhillips technically
Meanwhile, Gheit views all of the super majors -- which he owns himself -- as good long-term investments. Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, says his clients will certainly keep holding on to ExxonMobil at least.
Dollarhide does portray the sustained rise in oil prices as somewhat "miraculous." Like Gheit, however, he is convinced that ExxonMobil will continue to prosper even if energy prices drop.In the meantime, Dollarhide applauded the earnings of one big producer -- Oklahoma-based Kerr McGee ( KMG) -- that's directly benefiting from the current spikes. He called Kerr McGee's second-quarter profits of $1.09 a share, which beat the consensus estimate by a penny, "impressive." The company also handily beat revenue estimates of $931 million by reporting sales of $1.1 billion. Kerr McGee pointed to higher energy prices as a reason for its success. The company also highlighted its $3.4 billion acquisition of Westport Resources as a major achievement in the quarter. Dollarhide says that Kerr McGee is "growing through smart, shrewd acquisitions" and has "transformed itself to a formidable global player." But Gheit strongly disagrees. Indeed, he promptly downgraded Kerr McGee from neutral to sell when the company announced its latest acquisition this spring. Gheit believes that Kerr McGee is paying far too much for assets that will only depress the company's performance in a "more realistic" energy pricing environment. "Companies only create shareholder value when they acquire reserves at prices below their IRV," or implied reserve value, he wrote in April. "Although the acquisition may be justified from a strategic point of view, as it balances KMG's reserves and production mix between on shore and offshore, we see no financial justification."