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Reuters: PREVIEW-Exxon, Shell seen posting record 2007 profits

Fri Jan 25, 2008 2:04pm EST

Due at 1300 GMT, Feb. 1 

* Average Q4 EPS forecast of $1.95 a share

* Royal Dutch Shell Plc Q4 earnings

* Due at 0700 GMT, Jan. 31

* Average forecast $5.52 billion for Current Cost of Supply net income

By Tom Bergin and Michael Erman

LONDON/NEW YORK, Jan 25 (Reuters) – Exxon Mobil Corp (XOM.N: Quote, Profile, Research) and Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research) are forecast to, yet again, break corporate earnings records next week when they report their full-year results, as high oil prices continue to outweigh rising costs and taxes.

Houston-based Exxon, the world’s largest non-government controlled oil company in the world by market value, is expected to report a 4 percent rise in fourth-quarter profits to $10.65 billion dollars, according to Reuters calculations.

This would push 2007 earnings to $39.6 billion, just ahead of the $39.5 billion Exxon posted in 2006, which set a U.S. earnings record.

A Reuters poll of nine analysts forecast Hague-based Shell, the second-largest private oil company, will report a 10 percent rise in fourth quarter current cost of supply (CCS) net profits, excluding one-off items, to $6.1 billion. 

The CCS figure is comparable with U.S. net profit as it strips out the impact of changes in the value of inventories.

This would result in 2007 earnings of just under $27 billion and smash the European earnings record which the Anglo-Dutch oil major set last year.

“It would not surprise me to see them move back in line with some of the bigger numbers they’ve reported, just because we had really big increases year over year in oil prices,” said Phil Weiss, oil analyst with Argus Research. 

Oil prices rose 50 percent in the fourth quarter compared to a year earlier, with Brent averaging over $88 per barrel.

The relatively modest earnings growth over the same period, highlights the challenges the industry faces.

“You’re looking at some pretty mundane results from the super majors considering the oil macro,” said Jason Kenney, oil analyst at ING.

The U.S.’s third-largest oil company ConocoPhillips (COP.N: Quote, Profile, Research)
said fourth-quarter net income rose to $4.37 billion, from $3.2 billion in 2006, boosted by one-time items of $375 million.


Many analysts’ think industry earnings may have peaked as companies struggle to overcome double digit inflation in the cost of extracting oil, a trend of governments demanding a greater share of project revenues and a weakening in the
refining industry, which has continued into 2008.

“At anything much below $85/barrel we see the positive momentum of consensus earnings estimates … coming to an end,” analysts at JP Morgan said in a research note.

Weighing on the results will also be weak oil and gas production numbers, especially for Shell whose output is forecast to drop 8 percent.

Oil companies are struggling to bring new fields online quickly enough to make up for the natural decline of existing fields, due to a tight market for oil service contractors and difficulties in securing new fields to drill.

Also, under the production sharing agreements covering many new oil projects, the oil companies’ share of production drops as oil prices rises, while the government take increases.

Exxon and Shell are two of the world’s largest refiners and a narrowing in the margins for processing crude will have hit earnings.

After two decades of struggling to break even, oil refiners saw the arrival of what some analysts termed “the golden age of refining” in 2004.

In the second half of 2007, this appeared to end and so far in 2008 some refiners have actually cut runs as margins do not cover their running costs.

Chevron, the second-largest U.S. oil company is expected to report fourth-quarter earnings per share of around $2.27 next week, according to analysts. That would translate to earnings in the range of $4.8 billion, up around 27 percent on the same period of 2006.

Exxon trades on a price-earnings ratio, using 2008 forecasts, of 10.94 times, according to Reuters data.

Shell trades at a p/e of 9.03 times, while Chevron trades at 8.87 times. The other two Supermajors, London-based BP Plc (BP.L: Quote, Profile, Research) and France’s Total (TOTF.PA: Quote, Profile, Research), trade at 9.1 times and 9.03 times respectively.

SHELL Q4 (Jan. 31)

Current Cost of Supply net profit excluding non-operating items:

Mean:                            $6.053 billion
High:                             $6.593 billion
Low:                              $6.645 billion
Production:                   3.336 million barrels of oil equivalent per day

Number of analysts polled:       9

Q4, 2006:                        $5.500 bln ($6.015 bln including one-off gains)

Shell’s own poll of undisclosed number of analysts:

Mean:                            $5.83 billion

  (Reporting by Tom Bergin; Editing by David Cowell)

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