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Financial Times: Oil companies’ bonanza goes on

By Ed Crooks in London and Sheila McNulty in Houston

Published: October 27 2006 03:00 | Last updated: October 27 2006 03:00

High oil and gas prices fuelled better-than-expected third quarter results at two of the world’s biggest publicly listed oil companies. ExxonMobil reported its largest profit yet and Royal Dutch Shell recorded a 33 per cent jump in earnings.

Exxon’s $10.5bn (£5.6bn) in net income – its second highest in headline terms – was a record excluding special items, up 26 per cent from $8.3bn a year earlier. Net income was $1.77 a share, up 12 per cent from $1.58.

Much of the growth was due to strong production figures, which were up by 7 per cent on an oil-equivalent basis, or by 10 per cent excluding one-offs.

“The real story remains underlying growth in production,” said Doug Leggate of Citigroup Investment Research.

The production figures supported Exxon’s consistent confidence in its backlog of projects, but may not quell concerns that the big oil companies would have trouble maintaining production growth in the longer term.

US oil prices were above $70 for much of the quarter, down from $78 a barrel in June but still high enough to continue the run of strong results from the industry.

Shell’s earnings, on a current cost of supplies basis, were $6.948bn, down from $7.188bn in the third quarter of 2005 when its results included a $1.699bn gain from the sale of pipeline assets.

The earnings figure was well above the consensus of analysts’ forecasts and Shell’s A-shares jumped 2.4 per cent in London, closing up 43p at £18.32.

Exxon’s shares rose 0.8 per cent to $71.58 in afternoon trading in New York.

Shell noted that its strong results were in spite of losses in production caused by insurgent attacks in Nigeria, hurricane damage in the Gulf of Mexico and an increase in contributions owed to governments under production sharing contracts.

Excluding the adverse effects, Shell said, production was 3 per cent higher than the year before. Liquefied natural gas output was particularly strong, rising 19 per cent thanks to capacity expansion in Nigeria and Oman.

The oil companies have been attempting to reduce public resentment over their record profits amid high prices at the pumps and rising utility bills. Advertising campaigns have emphasised the cost of bringing energy to the world and the investments made even in low-price years.

Exxon continued that theme in its results. Rex Tillerson, chairman, said: “ExxonMobil continued its active efforts to increase world energy supplies.”

He noted that in the first nine months of the year the group’s spending on capital and exploration projects was $14.8bn, up by a fifth since 2005.

Copyright The Financial Times Limited 2006

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