July 30 (Bloomberg) -- Exxon Mobil Corp., the largest U.S. oil company, reported its lowest profit in more than five years and fell short of analyst estimates after the recession sapped demand for diesel, gasoline and natural gas.

Second-quarter net income dropped 66 percent to $3.95 billion, or 81 cents a share, from $11.7 billion, or $2.22, a year earlier, Irving, Texas-based Exxon Mobil said today in a statement. Per-share profit excluding legal costs related to the 1989 Valdez oil spill was 15 cents below the average of 16 analyst estimates compiled by Bloomberg.

The quarter also included an exploration failure in Brazil, tax increases in Canada and a narrowing of refining margins that may signal lower profitability on $1 billion in expansion work at Exxon Mobil plants in the U.S. and Europe. Oil futures in New York averaged less than $60 a barrel, down 52 percent from a year earlier, the biggest second-quarter drop on record.

“They’ve been slapped in the face by the economy,” said Paul Sutherland, who oversees $400 million as president of Financial & Investment Group in Traverse City, Michigan. “The economy fell off a cliff over the last 12 months, and that’s had an obvious impact on oil demand.”

Revenue slid 46 percent to $74.5 billion, Exxon Mobil said. Oil and natural-gas production fell 3.3 percent, and the company’s U.S. refining business had a loss of $15 million.

Exxon Mobil fell 71 cents, or 1 percent, to $70.72 in New York Stock Exchange composite trading. The stock has dropped 11 percent this year.

Shell, BP, Chevron

Royal Dutch Shell Plc, Europe’s largest oil company, earlier today reported a 67 percent decline in second-quarter profit, to $3.8 billion. London-based BP Plc said July 28 that its net income dropped 53 percent to $4.39 billion.

Houston-based ConocoPhillips, the third-largest U.S. oil company, yesterday said that its profit declined 76 percent to $1.3 billion. The No. 2 U.S. oil producer, San Ramon, California-based Chevron Corp., is scheduled to report its results for the quarter tomorrow.

Demand for petroleum-based fuels fell at more than five times the pace of the second-quarter drop in global oil output, according to the International Energy Agency in Paris. The result was growth in a global oil glut, depressing prices.

The world’s appetite for crude isn’t expected to recover to 2008 levels before 2011, the agency said. In the U.S., demand has fallen 3.5 percent in the past year.

Production Falls

Exxon Mobil’s oil and gas output declined to the equivalent of 3.68 million barrels a day, the lowest second-quarter production since Exxon Corp.’s 1999 acquisition of Mobil Corp. The drop in output, coupled with lower commodity prices, slashed earnings from oil and gas wells by 62 percent to $3.8 billion.

Worldwide refining profit fell 67 percent to $512 million as lower gasoline, diesel and jet-fuel demand squeezed crude- processing margins. The company’s sales of refined fuels dropped enough to fill 13 supertankers.

Exxon Mobil’s chemicals earnings fell 47 percent to $367 million as sales by volume slid 6.7 percent, the company said.

Exxon Mobil said it’s reducing share buybacks in the current quarter by 20 percent to $4 billion, the third straight cut, after second-quarter cash flow from operations and asset sales plunged 79 percent.

Exploration Push

Exxon Mobil Chief Executive Officer Rex Tillerson, 57, is spending more than $79 million a day this year on exploration, refinery expansions and other capital projects. He’s aiming for a 2 percent increase in oil and gas production to the equivalent of 4 million barrels of crude a day.

The company’s Guarani well in a deepwater prospect off the coast of Brazil was declared a dry hole last month after engineers failed to find evidence of a commercially viable oil deposit. Exxon Mobil is in talks with partners Hess Corp. and Petroleo Brasileiro SA about where to drill another exploratory well in the formation.

In Canada, the provincial government of Newfoundland and Labrador boosted the royalty rates for a section of the Exxon Mobil-operated Hibernia field to 50 percent, a record for any Newfoundland oil project.

An agreement on the increase, announced June 16, ended a two-year standoff that had delayed Exxon Mobil’s plans to extend the southern boundary of the field and lift production. The company’s partners in Hibernia, which began pumping oil in 1997, include Chevron, Petro-Canada, Murphy Oil Corp., StatoilHydro ASA and Canada Hibernia Holding Corp.

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

Last Updated: July 30, 2009 16:11 EDT