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ConocoPhillips profits pumped up
Second-quarter earnings rise by two-thirds

By Kristen Hays
ASSOCIATED PRESS

July 27, 2006

HOUSTON – ConocoPhillips pumped more oil and gas and commanded sharply higher prices for its energy in the second quarter, boosting profits by nearly two-thirds to more than $5 billion.

Its acquisition of Burlington Resources in March appears to have paid off , accounting for more than a quarter of the earnings growth in its exploration and production business.

ConocoPhillips, which announced its results yesterday, far surpassed Wall Street's expectations, and its shares climbed about 2 percent.

The nation's third-largest oil company earned $5.18 billion in the April-June quarter – a 65 percent increase from the $3.14 billion profit during the same period a year earlier.

Revenue rose 12.6 percent to $47.1 billion, highlighting how staggeringly high profit margins for oil, gasoline and other fuels accounted for the bulk of ConocoPhillips' – and, for that matter, the entire industry's – second-quarter bonanza.

Analysts surveyed by Thomson Financial forecast profits of $36 billion for the world's six largest oil companies. But judging by the performances of ConocoPhillips and BP PLC, which reported a $7.3 billion profit on Tuesday, those estimates could be too low.

Exxon Mobil Corp. and Royal Dutch Shell PLC are scheduled to release their second quarter results today, followed by Chevron Corp. tomorrow. French oil giant Total SA releases its results Aug. 3.

Analysts said the full potential of the Burlington Resources acquisition was not realized because natural gas prices, while higher than a year ago, have fallen significantly since the acquisition was announced in December.

Stephen Leeb, president of Leeb Capital Management, said the Burlington acquisition hasn't received much applause on Wall Street because natural gas prices have declined. But he said the move makes sense for ConocoPhillips longer-term because it will help increase output.

“Other companies depend on rising energy prices,” Leeb said. “ConocoPhillips certainly will benefit from increasing energy prices, but has an added kicker because of its potential to increase production.”

Shares of Houston-based ConocoPhillips rose $1.15 to $68.60 yesterday on the New York Stock Exchange. Shares have traded in a 52-week range of $57.05 to $72.50.

ConocoPhillips closed its $33.9 billion acquisition of Burlington Resources in the first quarter, expanding its gas reserves and boosting its North American natural gas production.

Jim Mulva, ConocoPhillips' chairman and CEO, said Burlington Resources' assets contributed $385 million to the exploration and production segment's $3.3 billion in net income, an increase of $1.38 billion from the year before.

“We're pleased with the progress we've made integrating the Burlington Resources assets for the second quarter,” Mulva said during a conference call with analysts.

The company produced slightly more than 1 million barrels of crude oil per day in the second quarter, up from 932,000 barrels a day a year earlier. Its natural gas output totaled 5.5 billion cubic feet a day, up from 3.2 billion cubic feet a day a year earlier.

It sold crude oil, on average, for $64.34 a barrel, compared with $46.93 a year earlier. Its average natural-gas sales price was $5.85 per 1,000 cubic feet, compared with $5.52 a year earlier.

The company's refining and marketing segment reported net income of $1.7 billion, up from $1.1 billion in the year-ago period, because of a 53 percent surge in domestic refining margins – the profit margin per-barrel of crude oil that is refined.

Unplanned downtime at refineries in Pennsylvania and Louisiana lowered the company's fuel production for the quarter.

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Exxon Mobil profits up 36%
Rocketing energy prices also boost Shell's quarterly earnings

By Steve Quinn
ASSOCIATED PRESS

July 28, 2006

DALLAS – Soaring energy prices catapulted Exxon Mobil to a second-quarter profit of more than $10 billion and promise to ignite industrywide growth – and public outrage – all year.

Royal Dutch Shell PLC came close to matching Exxon Mobil Corp.'s 36 percent quarterly earnings boost yesterday, posting net income of $7.3 billion, an increase of 40 percent from the year before.

The oil and gas industry's prolific profits come as American motorists pay an average of $3 a gallon at the pump and as Washington lawmakers consider opening to drilling areas of the Gulf of Mexico currently off-limits – both of which have generated political backlash.

Rep. Edward Markey, D-Mass., said yesterday that Americans have been “tipped upside down and have (had) their savings shaken out of their pockets at the gas pump.”

Across the globe, energy-intensive businesses such as shippers and chemical manufacturers are feeling the pinch from higher prices, while oil-exporting nations in the Middle East and beyond are experiencing rapid economic growth.

Crude-oil prices are hovering near $75 a barrel, and analysts do not foresee a sharp drop anytime soon given the world's rising appetite for fuel and supply threats that scare the market.

“We continue to see demand growth year over year,” Henry Hubble, Exxon's vice president of investor relations, told analysts. “We're selling everything we can make.”

Other oil companies reported big numbers for the quarter this week as well. BP PLC reported its quarterly profit rose 30 percent, to $7.3 billion, and ConocoPhillips said its earnings rose 65 percent, to $5.2 billion. Chevron Corp. will round out the field of five majors when it reports its second-quarter performance today.

These five were expected to earn an estimated $33.6 billion, or a 32 percent boost, according to analysts surveyed by Thomson Financial. Already the first four have reported earning $30.16 billion.

And if prices stay at these levels, look for more record-breaking profits soon, said Fadel Gheit, analyst for Oppenheimer & Co.

“The rising tide lifts all boats,” Gheit said. “Unless there is a price collapse of oil, you will see the second half of the year best its first half.”

Exxon Mobil said earnings amounted to $1.72 per share in the April-June quarter compared with a profit of $7.64 billion, or $1.20 per share, a year ago.

The results topped Wall Street expectations but came in behind the company's record profit of $10.71 billion, set in the fourth quarter of 2005. Analysts polled by Thomson Financial expected the company to earn $1.64 per share.

Revenue rose to $99.03 billion from $88.57 billion in the prior-year quarter. That was short of Exxon Mobil's record third-quarter revenue of $100.72 billion – which also stands as record revenue generated by any U.S. public company in a quarter.

Its shares fell 13 cents to close at $66.47 on the New York Stock Exchange after reaching an all-time high of $67.65 earlier in the session.

Exxon Mobil said it spent $4.9 billion on capital and exploration projects during the quarter, up 8 percent from a year ago, while distributing $7.9 billion to shareholders in the form of dividends and share repurchases.

Congress has been urging the big oil companies to put more of their profits toward boosting the supply of energy for consumers. And this week the Senate sought to help out the industry by working on an election-year bill that would open a large area of the central Gulf of Mexico to oil and gas drilling.

The Senate agreed 86-12 Wednesday to proceed with the legislation that opponents fear could clear the way to lifting a federal drilling moratorium that has protected 85 percent of the country's Outer Continental Shelf from New England to Alaska for a quarter century.

Hubble told analysts that Exxon will boost capital spending from the previously stated $19 billion by an additional $1 billion this year, though one-third of that increase is tied to rising costs for labor and equipment.

“That's a big midyear jump,” said Bruce Lanni, analyst with A.G. Edwards.

Exxon Mobil's production has increased 6 percent from a year ago and 9 percent if the impact of divestments are excluded.

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Chevron quarter profits hit a record
$4.3 billion falls short of Wall St. estimates

By Michael Liedtke
ASSOCIATED PRESS

July 29, 2006

SAN RAMON, Calif. – Chevron Corp. said yesterday its second-quarter earnings soared to a high, but that wasn't enough to satisfy investors whose expectations have been raised by the oil industry's recent run of eye-popping profit.

The San Ramon-based company earned $4.35 billion, or $1.97 per share, for the three months ended in June. That represented an 18 percent increase from net income of $3.68 billion, or $1.76 per share, at the same time last year.

It marks the largest three-month profit in Chevron's 127-year history, eclipsing earnings of $4.14 billion registered in last year's final quarter after energy prices spiked in the aftermath of hurricanes Katrina and Rita.

Revenue for the period was $53.5 billion, an 11 percent increase from $48.3 billion last year.

As mammoth as it might appear to motorists weary of $3-per-gallon gas prices, Chevron's profit let down Wall Street.

The average earnings estimate among analysts surveyed by Thomson Financial had been $2.21 per share.

“It was still like they were printing money. They just weren't printing as much as everybody thought,” said industry analyst Fadel Gheit of Oppenheimer & Co.

The company's shares fell $1.68, or 2.5 percent, to close at $66.05 on the New York Stock Exchange. Chevron's market value has climbed by about $20 billion, or 16 percent, this year.

Chevron would have come closer to hitting analysts' target if not for a $300 million charge that decreased its earnings by 13 cents per share. The reduction stemmed from the company's uninsured costs for equipment and oil wells ravaged in last year's hurricanes.

The costs of abandoning other projects shaved 11 more cents per share from Chevron's results, spokesman Don Campbell said. What's more, some oil produced in the second quarter wasn't delivered before July, pushing another 11 cents per share of potential earnings into the third quarter, Campbell said.

Citigroup analyst Doug Leggate thought Chevron's second-quarter performance was better than the bottom line made it appear. If not for certain accounting items, Leggate estimated, Chevron would have earned $2.13 per share. In a research note, Leggate concluded that Chevron didn't take advantage of higher gasoline prices as much as Wall Street had anticipated.

The Chevron division that refines and sells gasoline in the United States made $554 million during the second quarter, a 39 percent increase from last year.

Chevron's total profit was the smallest among the world's other major oil companies – a pecking order that underscores the industry's tremendous moneymaking prowess now that energy prices appear likely to remain at heights that seemed far-fetched as the 21st century began.

Earlier this week, Exxon Mobil Corp., BP PLC, ConocoPhillips and Royal Dutch Shell PLC reported second-quarter profits ranging between $5.18 billion and $10.36 billion.

Combined with Chevron, the companies earned $34.6 billion in the second quarter, 36 percent more than the same period last year.

Through the first half of the year, the five companies earned $62.8 billion, putting them 20 percent ahead of their record-setting pace last year.

In July, oil prices have climbed higher, peaking at $78.40 per barrel. Unless conditions shift dramatically, the third quarter probably will be even more prosperous for the oil companies than the second quarter, Oppenheimer's Gheit said.

As the profit rises, the political pressure to impose a windfall profit on the industry seems likely to mount, with congressional elections just a few months away.

“There is no question that there is anger and resentment among voters,” said Tyson Slocum, who oversees energy issues for Public Citizen, a consumer watchdog group. “It's going to become a variable in the November elections.”

The U.S. Senate grilled Chevron Chairman David O'Reilly and his peers last year without taking action against the industry.

In their defense, the executives have repeatedly pointed out that they don't set the price for crude oil, although their bonuses have climbed as their companies reap the benefits of the energy crunch.

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