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Bloomberg: Exxon, Shell May Say Profit Rose on Refining as BP’s Dropped

By Fred Pals and Stephen Voss
 
Fueling up July 23 (Bloomberg) — Exxon Mobil Corp. and Royal Dutch Shell Plc will probably say this week that second-quarter profit gained because of higher fuel prices, while oil refinery shutdowns may have hurt BP Plc.

Exxon Mobil, the world’s biggest company by market value, will probably report earnings per share climbed to $1.87, or more than $10 billion, from $1.72, based on the average of 15 estimates compiled by Bloomberg. Shell may say profit excluding one-time items rose 2.3 percent to $6.70 billion, according to the median estimate of 11 analysts surveyed by Bloomberg. BP’s earnings likely fell 17 percent to $5.06 billion, the survey showed.

Record U.S. gasoline prices, the result of rising demand and refinery shutdowns, caused profits to swell from processing crude oil. Natural gas prices also rose, contributing to profits at the three oil companies that approached last year’s records. The combined earnings are likely to be as large as the economy of Costa Rica.

“We had thought that we’d never see another year like 2006 for oil company profits, but finally 2007 is also shaping up to be a very good year,” said Antoine Leurent, an analyst with KBC Securities in Paris. “We are back to record oil prices. We have supply problems from refining bottlenecks in the U.S., and a refusal of OPEC to raise its production.”

BP, whose second-quarter report tomorrow is the first by the three companies, lost output at its refineries in Whiting, Indiana, and Texas City, Texas. At full strength the two plants combined can handle about 880,000 barrels of oil a day, more than the daily production of OPEC member Qatar.

Better Performance

“Shell’s downstream operations have performed much better than BP’s,” Jorrit van Spaendonck, who helps oversee $3 billion at SNS Asset Management in Den Bosch, the Netherlands, and holds shares in both companies, said during a July 16 interview.

Crude oil prices are rising close to the records of 2006 after the Organization of Petroleum Exporting Countries twice reduced production to lower inventories. Brent crude oil, the benchmark for two-thirds of the world’s output, ended last week at $77.64 a barrel in London, more than doubling in price since 2003 amid surging demand from China and the U.S.

Pump gasoline prices in the U.S., the world’s biggest consumer, averaged about 5.7 percent higher in the period than a year earlier and reached a record $3.227 a gallon on May 23, according to the American Automobile Association.

Refining margins worldwide averaged $16.66 a barrel in the second quarter, up from $12.59 a year earlier, according to BP.

`Stronger’ Refining

Shares of Shell, based in The Hague, have risen 12 percent this year, outperforming a 5.6 percent gain for London-based BP. Exxon Mobil’s stock has beaten them, advancing 20 percent.

Net income at Exxon Mobil, led by Chief Executive Officer Rex Tillerson, may approach $11 billion in the period, according to JPMorgan Chase & Co. Refining profit at the Irving, Texas- based company, which reports July 26, probably jumped 59 percent to $3.95 billion, William Featherston, an analyst at UBS Securities LLC in New York, said in a July 18 note.

“The improvement in downstream earnings is driven almost entirely by stronger U.S. and international refining margins,” UBS said.

Messages left by Bloomberg for Exxon Mobil press officials outside of normal business hours weren’t immediately returned.

Shell CEO Jeroen van der Veer has topped analyst estimates for five consecutive quarters, bolstered by refining and high crude prices. BP, where CEO Tony Hayward took over from John Browne on May 1, hasn’t beaten consensus analyst estimates since the second quarter of 2006.

Shell Spending

Analyst profit predictions for Shell, which also reports July 26, and BP, which is based on the median of eight estimates, exclude changes in oil inventory values and one-time items. Shell spokesman Adam Newton in London said the average second-quarter estimate from analysts providing predictions on that basis was $6.760 billion. BP spokesman Robert Wine, also in London, said the average estimate was $5.051 billion.

Profit at Shell by that measure a year earlier was $6.55 billion, with BP at $6.11 billion.

Shell is investing billions of dollars in unconventional oil projects, including oil sands in Canada, to make up for lost output from Russia and Nigeria.

Second-quarter oil and gas output at the company probably fell 1.8 percent to 3.196 million barrels of oil equivalent a day, according to a July 17 report by Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. Profit at Shell’s oil products division may have gained 19 percent to $2.53 billion, Kenney’s figures show.

Production Drop

BP’s 405,000 barrels-a-day refinery in Whiting suffered as crude processing units were halted in the quarter and power interruptions damaged a hydrotreater, a unit that removes sulfur from fuels. BP’s refinery in Texas City, its biggest in the U.S., also ran at less than full capacity.

BP’s production likely slid 4 percent to 3.856 million a day and earnings at its refining and marketing unit probably fell by almost $1 billion to $1.39 billion, Kenney said.

“BP will see the worst results of the peer group,” he said.

Shell and BP sustained setbacks in Russia at the hands of OAO Gazprom in the period. The state-run gas company bought a majority stake in the Sakhalin-2 oil and gas project in April, cutting Shell’s holding in half. Last month, Gazprom forced BP to surrender control of Kovykta, a Siberian gas field.

By contrast, Gazprom said last month it doesn’t expect to buy a stake in Exxon Mobil’s Sakhalin-1 venture in Russia.

To contact the reporters on this story: Fred Pals in Amsterdam at [email protected] ; Steve Voss in London at [email protected]

Last Updated: July 22, 2007 19:53 EDT

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