Oct. 29--Oil titans Exxon Mobil Corp. and Royal Dutch Shell both reported steep drops in third-quarter earnings, hurt by oil and natural gas prices that were down sharply from last year's peaks and weak economic conditions that continued to stifle global energy demand.

Shell also outlined deeper job cuts, saying 5,000 employees, or 10 percent of its global work force, will leave the company by year's end.

Exxon Mobil, the largest U.S. oil company, said net income fell 65 percent to $4.73 billion, or 98 cents a share, from $14.8 billion, or $2.85, a year earlier.

Lower commodity prices weighed heavily on results, reducing earnings by about $4.9 billion and overwhelming a nearly 3 percent increase in production to 2.3 million barrels of oil equivalent, the Irving-based oil company said in a statement.

A sharp decline in oil refining margins also cut deep, slashing Exxon's downstream unit earnings to $325 million, down $2.7 billion from the July-to-September period a year ago. That included a $203 million loss in the U.S., the biggest ever for the division. Chemical division earnings were also down.

"While continuing to be impacted by lower commodity prices and weak product margins, we maintained our focus on operational excellence and invested $19 billion through the first three quarters of the year to develop new energy supplies," Exxon Mobil CEO Rex W. Tillerson said today in a prepared statement.

Exxon's third quarter results included a $1.6 million gain from the sale of a natural gas transportation business in Germany and a charge of $170 million for legal damages related to the Valdez oil spill in Alaska in 1989.

Royal Dutch Shell, Europe's largest oil company, reported a 62 percent drop in third-quarter profit to $3.25 billion, from $8.45 billion a year earlier.

"Our third-quarter results were affected by the weak global economy," said Royal Dutch Shell CEO Peter Voser in a statement. "We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery."

Voser said a sweeping reorganization he implemented upon his arrival to the CEO post in July, replacing Jeroen van der Veer, is "progressing well."

As part of the downsizing, Shell's senior management ranks have been cut by 20 percent to 600 positions leading fewer divisions.

The 10 percent reduction in the work force takes place in newly redesigned divisions and "mostly" in management and non-operational positions, Shell spokesman Shaun Wiggins said. Today, Shell staff are re-applying for some 15,000 roles in the restructured divisions.

Over half of the job losses are in the US, UK and Netherlands, he said.

The Hague-based company, with U.S. headquarters in Houston, has not disclosed how many workers will be affected in Houston.

The moves have helped reduce operating costs by roughly $1 billion in the first nine months of 2009, Vosser said.

Crude oil prices, which touched a record $147.27 a barrel last July, averaged $68.24 in the third quarter.

The average gas price dropped 62 percent in the third quarter from a year earlier.

The sharp drop in prices has also cut into third quarter profits at other major oil companies.

On Monday, London-based BP said its net income fell 34 percent to $5.34 billion. Houston-based ConocoPhillips, the third-largest U.S. oil company, Wednesday said that its profit declined 71 percent to $1.5 billion.

The No. 2 U.S. oil producer, San Ramon, Calif.-based Chevron Corp., is scheduled to report its results for the quarter Friday.

brett.clanton@chron.com

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