Exxon Mobil posted a 1% drop in quarterly earnings, missing expectations, as weaker natural gas prices and output offset higher margins from gasoline and chemicals.
The company's shares fell 4% to $89.08 on the New York Stock Exchange, weighing on the Dow Jones industrial average, of which it is a component.
Still, it was another enormous quarter for Exxon Mobil , the world's largest publicly-traded company, which has ridden the energy boom to previously unforeseen levels of profitability.
The company posted record earnings of $39.5 billion in 2006 and is just under pace to match that mark this year.
The company's production dipped 1% on an oil equivalent basis from last year due to field decline and lower European demand for natural gas.
Net income in the second quarter decreased to $10.26 billion, or $1.83 a share, from $10.36 billion, or $1.72 a share, last year. Earnings per share rose because the number of Exxon's outstanding shares dropped nearly 7% through the company's aggressive buyback program.
The average forecast of Wall Street analysts was $1.96 a share, according to Reuters Estimates.
"Europe had a warm winter, so European natural gas prices were down in the first half for Exxon, Royal Dutch Shell and other companies that sell into that market," said McDep Associates analyst Kurt Wulff.
"European natural gas has been one of their biggest areas of profits over the years, but the market's working in the other direction right now," he said.
Wulff noted that benchmark gas prices in Europe have turned upwards in recent weeks.
Refining Still Strong
Earnings from its exploration and production segment fell over 16% to $5.95 billion.
The company's European natural gas prices fell nearly 14% to $6.67 per thousand cubic feet, while its price for other natural gas sales outside the U.S. fell 10 percent to $6 per thousand cubic feet.
Exxon's U.S. natural gas prices were up 8% from last year.
The company's profit from its downstream unit -- which includes its refineries and service stations -- rose 36 percent to $3.39 billion.
"I think the street was a little optimistic on the downstream," said Gene Pisasale, who helps manage about $25 billion at Mercantile Capital Advisors, a unit of PNC Wealth Management.
He said the refining and marketing results were still very strong, noting that the company's better-than-expected first quarter results may have prodded analysts to ratchet up their forecasts.
Integrated oil companies that both produce and refine oil and gas were expected to have yet another in a series of stellar quarters as soaring refining margins picked up the slack for a year over year drop in oil prices.
ConocoPhillips and Royal Dutch Shell both posted better-than-expected second-quarter profits on the back of strong results from their refineries.
But British oil major BP said its profit fell 1% as lower production and refinery outages prevented it from taking advantage of the refining boon.
Through Wednesday's close, Exxon's shares were up about 21% this year, just underperforming the Chicago Board Options Exchange's oil index, which rose nearly 22% in the same period.