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Houston Chronicle: Another grand year for Big Oil: Analysts predict hefty 2006 profits but a falling-off in the near future


Upcoming earnings reports for energy companies:

• ConocoPhillips: Today

• Exxon Mobil: Feb. 1

• Marathon: Feb. 1

• Shell: Feb. 1

• Chevron: Feb. 2

• BP: Feb. 6

Source: companies

High oil and natural gas prices fueled unprecedented profits for oil majors in 2005, and analysts expect lofty year-end figures for 2006 as well.

But industry observers expect that 2007 profits will fall below last year’s records in conjunction with lower oil and natural gas prices.

“All the companies will have higher earnings for the year 2006 over 2005. But the third quarter is the peak. That’s it. It’s downhill from there,” said Fadel Gheit, an oil analyst with Oppenheimer & Co. in New York.

John Parry, an analyst with John S. Herold, said a lot of momentum that pushed prices high, such as supply fears or international unrest, has ebbed.

“But there will still be decent numbers,” he said.

Houston-based ConocoPhillips will kick off oil’s earnings season today with the release of its fourth-quarter and year-end 2006 results.

Next week Exxon Mobil Corp., Royal Dutch Shell, Chevron Corp. and Marathon Oil Corp. are scheduled to unveil results, and BP will follow suit Feb. 6.

High oil and natural gas prices — as well as high refining margins for part of the year — pushed 2006 results into the rafters, analysts said.

Oil prices reached $77 a barrel in July and fell to $61 by year’s end on the New York Mercantile Exchange.

Natural gas prices started high on post-2005 hurricane fallout, fell to $4 in September, later surpassed $8 and ended 2006 above $6.

Oil prices had fallen to less than $52 last week on a mixture of weak demand, a warmer-than-normal winter and high inventories.

But prices surged Tuesday to close at $55.04 after the Energy Department announced plans to boost the Strategic Oil Reserve to 1.5 billion barrels over the next 20 years from its current 727 million barrels.

Analysts said, however, that the rally may only last until today’s supply data from the department.

Natural gas closed at $7.59 Tuesday.

Gasoline futures settled at $1.4473 a gallon, up 7.19 cents.

“I’d say what we see in this fourth quarter will be more typical of what companies are capable of doing on an ongoing basis, unless oil prices fall to $25 or $30. Oil is back to what we call normal now,” Parry said.

$70 billion for 2006

Analysts surveyed by Thomson Financial expect the three U.S. oil majors to post a combined $70 billion for 2006, easily surpassing their collective $63.8 billion in the previous year.

Irving-based Exxon Mobil is expected to record $37 billion of the total, which would break the behemoth’s own record for the highest annual profit ever recorded by a U.S. company. Exxon Mobil raked in $36.1 billion in 2005.

Marathon’s big jump

Houston-based ConocoPhillips is expected to post $16.2 billion for the year, a $2.6 billion increase over 2005, while San Ramon, Calif.-based Chevron posts $17.3 billion, a $3.2 billion hike.

Marathon is expected to report $4.4 billion for the year, a 46 percent jump over 2005 profits of $3 billion.

Of their international peers, the Thomson Financial survey showed analysts expect the Hague-based Royal Dutch Shell to report $22.1 billion in annual profit, a $3.2 billion drop from 2005, while London-based BP will likely match its previous year profit of $22.3 billion.

Down for quarter

For the quarter, some analysts expect results to fall an average of 20 percent or more when compared to the fourth quarter of 2005, when prices skyrocketed after hurricanes Katrina and Rita battered the Gulf Coast.

Citigroup analyst Doug Leggate said in a research report that prices couldn’t stay that high, and weaker commodity prices across the board point to earnings declines when compared with 2005.

“While near-term earnings momentum has moved into reverse, this has to be seen against unsustainable levels” that did not translate into big jumps in oil stock prices, Leggate said.

Jan. 23, 2007, 11:10PM
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