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Bloomberg: BP, Shell May Say Profit Rose on Oil Prices, Refining Recovery

EXTRACT: Shell’s Nigerian venture has yet to resume full production after a series of rebel attacks that began in January. Output of about 473,000 barrels a day remains halted, London-based spokesman Axel Zander said on July 20.

THE ARTICLE

July 24 (Bloomberg) — BP Plc and Royal Dutch Shell Plc, Europe’s biggest oil companies, may say this week that second- quarter earnings climbed because of a surge in crude prices and a rebound in refining profits.

London-based BP may say profit rose 2.9 percent to $5.97 billion from $5.8 billion a year earlier, under accounting that eliminates one-time items, according to the median estimate in a Bloomberg News survey of 11 analysts. Shell probably earned $6.2 billion, a 19 percent jump from $5.2 billion a year earlier, a survey of 10 analysts found.

Profits at the six biggest publicly traded oil companies by sales jumped 23 percent to $36 billion in the quarter, based on JPMorgan Chase & Co. estimates. That’s more than Venezuela’s gross domestic product in the same period. Companies benefited from near-record prices, bolstered by the diplomatic standoff over Iran’s nuclear program and cuts to Nigerian supplies.

“There’s been phenomenal cash flow from oil production,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, Scotland. He has a “buy” recommendation for BP, with Shell at “hold.”

Oil prices in New York surged 33 percent, on average, to $70.66 a barrel in the second quarter. BP reported refining margins of $12.61 a barrel in the quarter, up 50 percent from $8.42 in the year-earlier period and double the $6.28 first- quarter figure, the company said earlier this month.

$1 Billion a Day

Irving, Texas-based Exxon Mobil Corp., the largest publicly traded oil company, is expected to say July 27 that second- quarter profit climbed 30 percent from a year earlier, to $10 billion, according to the average estimate from 20 analysts surveyed by Thomson Financial. Sales are expected to surpass $1 billion a day, the first time ever for a U.S. company.

“We don’t comment on earnings and we don’t give earnings guidance,” said Exxon Mobil spokesman Mark Boudreaux.

BP, led by Chief Executive Officer John Browne, reported a 2.5 percent drop in second-quarter oil and gas output from a year earlier, according to a July 3 statement. The company reports earnings tomorrow, followed by Shell, based in The Hague, on July 27. Roddy Kennedy, a BP spokesman in London, declined to comment on the earnings estimates, as did Jonathan Charles, a London- based spokesman for Shell.

Second-quarter profits for oil companies will be “driven by strong oil prices and refining margins,” Lehman Brothers Holdings Inc. analysts including Lucy Haskins in London said in a July 19 report. Lehman has an “equal weight” recommendation for BP stock, with Shell at “overweight.”

BG Profit

BP shares are little changed this year and value the company at 123.4 billion pounds ($229 billion). Shell’s London-traded B shares have gained 1 percent in 2006, valuing it at 124 billion pounds. BP last year increased 22 percent, with Shell adding 20 percent.

Of the 28 analysts that have rated BP in the past three months, 19 recommend investors “buy” the shares. Six say “hold” and three “sell,” according to data compiled by Bloomberg. Of the 26 covering Shell, 15 have “buy” recommendations, six say “hold,” with five at “sell.”

BG Group Plc, the U.K.’s third-biggest oil company, will report profit before its two larger competitors, with earnings expected at 7 a.m. London time today.

Reading, England-based BG may say second-quarter profit before one-time items rose 26 percent to 347 million pounds, according to a Bloomberg survey of seven analysts. Neil Burrows, a BG spokesman, didn’t immediately return a Bloomberg call for comment, placed outside normal working hours.

Share Buybacks

“BG is the only company offering significant production growth,” said ING’s Kenney. Output probably rose 32 percent to 59 million barrels of oil equivalent in the quarter, Sanford C. Bernstein analysts including Neil McMahon in London said in a July 14 note. Shell’s output climbed 1.5 percent, McMahon estimated.

BP on July 3 reported a fourth consecutive quarterly drop in production after Venezuela appropriated more of its output. It said a Texas refinery blast cost the company $500 million more than estimated.

Browne, who has said oil will fall to $40 a barrel, said in February he would return $65 billion to investors over three years should crude stay above $60 a barrel.

“If they had a more bullish outlook on oil prices, maybe they’d use the money on capital expenditure or buying assets such as oil sands,” said Craig Pennington, global head of energy research at Schroders Plc in London.

Lost Production

Shell, led by CEO Jeroen van der Veer, may say second- quarter operating profit from exploration and production rose 37 percent to $3.96 billion, Credit Suisse analysts including Mark Flannery in New York said in a July 12 note.

Shell’s Nigerian venture has yet to resume full production after a series of rebel attacks that began in January. Output of about 473,000 barrels a day remains halted, London-based spokesman Axel Zander said on July 20.

Earnings from oil products may have climbed 12 percent to $2.3 billion, even with “larger-than-expected refining maintenance” at Shell’s Pernis refinery in Rotterdam, Credit Suisse said.

Norsk Hydro ASA, Norway’s second-biggest oil company, may say tomorrow second-quarter profit before one-time items rose 31 percent to 14 billion kroner ($2.2 billion), Credit Suisse estimated. Tor Steinum, a spokesman for Norsk Hydro, declined to comment.

To contact the reporter on this story:
Mathew Carr in London at  [email protected]

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