May 1 (Bloomberg) -- Exxon Mobil Corp. posted the smallest earnings increase among the world's three largest oil companies, falling short of analyst estimates as production dropped and profit margins from refining narrowed.

Exxon Mobil fell 3.6 percent in New York trading after the Irving, Texas-based company said first-quarter net income rose to $10.9 billion, or $2.03 a share, from $9.28 billion, or $1.62, a year earlier. Per-share profit was 10 cents below the average of 17 analyst estimates compiled by Bloomberg.

Exxon Mobil's 17 percent profit increase lagged behind the gains of 25 percent and 63 percent by Royal Dutch Shell Plc and BP Plc. Oil and gas production fell 5.6 percent, leaving Chief Executive Officer Rex Tillerson unable to take full advantage of record prices. U.S. refining profit at Exxon Mobil, the world's largest company by market value, plunged by more than half.

``These numbers are a bit disappointing,'' said Douglas Ober, who helps manage $2.3 billion at Baltimore-based Petroleum & Resources Corp., where Exxon Mobil is his biggest holding. ``The major focus of disappointment is their international exploration and production.''

Revenue climbed 34 percent to $116.9 billion, Exxon Mobil said in a statement. That was almost $2.6 billion below analyst estimates. Earnings fell short of estimates for the third time in the past year.

$100 a Barrel

U.S. oil futures breached $100 a barrel for the first time in January and averaged $97.82, up 68 percent from the 2007 first quarter. The gain was offset by narrowing margins on refined fuels and contracts that give oil-rich governments a bigger share of output when prices rise.

Exxon Mobil said its crude output dropped 11 percent to 2.47 million barrels a day, led by declines in Africa and Europe. Natural-gas production fell in the U.S., Canada, South America, Asia and the Middle East.

Excluding the effects of asset sales, Venezuela's 2007 seizure of an oil field and output quotas in nations that belong to the Organization of Petroleum Exporting Countries, the company's crude and gas production declined 3 percent.

Refining profit slumped as the cost of oil rose faster than the 47 percent increase in wholesale gasoline prices. Net income at the company's U.S. refineries dropped almost $5 million a day. Exxon Mobil is the world's biggest refiner and pumps more oil than every member of OPEC except Saudi Arabia and Iran.

Prices at the Pump

Retail gasoline prices in the U.S. rose 32 percent to an average of $3.11 a gallon in the quarter on their way to reaching a record $3.60 on April 28, according to the Energy Department in Washington.

Exxon Mobil dropped $3.37 to $89.70 in New York Stock Exchange composite trading, the biggest decline today in the 30- member Dow Jones Industrial Average. The stock has 11 buy and 10 hold ratings from analysts.

The company spent $9.5 billion on stock buybacks, up 20 percent from the last three months of 2007, and announced a 14 percent increase in its shareholder dividend yesterday.

Exxon Mobil, Shell and BP netted almost $13 million an hour combined in the first quarter amid the steepest increase in oil prices since 2000. Major producers have struggled to increase reserves as countries such as Venezuela and Russia reduce foreign access, and they haven't been able to pass on to motorists the full cost of record crude costs at refineries.

Refining Squeeze

``They've got one big tailwind and that's higher oil prices, but that's also a headwind because it means lower margins in their chemicals and refining businesses,'' said Stephen Leeb, who manages $175 million as president of Leeb Capital Management in New York. ``Exxon is also having trouble raising production, and that's not a good sign.''

San Ramon, California-based Chevron Corp., the second- biggest U.S. oil company, is scheduled to report its first- quarter results tomorrow. Houston-based ConocoPhillips, No. 3 in the U.S., posted a 17 percent profit increase, to $4.14 billion, last week.

Natural-gas futures traded 22 percent higher than a year earlier, averaging $8.74 per million British thermal units.

Crude prices are expected to remain above $105 a barrel through 2016, New York futures contracts indicate. That's more than twice the minimum price that major oil companies need to continue raising exploration budgets, according to Lehman Brothers Holdings Inc. analyst James Crandell.

Spending Plans

Exxon Mobil plans to boost spending on new wells and plant expansions by at least 20 percent this year to more than $25 billion, CEO Tillerson said during a March 5 presentation to investors.

Descendants of company founder John D. Rockefeller want Exxon Mobil to spend more money on alternative fuels and bar the CEO from also serving as chairman. Yesterday, family members urged fellow shareholders to support four resolutions on the environment and corporate governance at the company's May 28 annual meeting.

Exxon Mobil's price-to-book ratio, or share price divided by book value, is 62 percent above the average for its U.S.- based peer group, according to data compiled by Bloomberg. Exxon Mobil has a 29 percent return on capital employed, highest among the world's 10 largest oil companies by sales.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

Last Updated: May 1, 2008 16:12 EDT