For oil com­pa­nies, idle times in Gulf no bar­rier to profit

Exxon’s best quar­ter since ’08 fed by rises in prices, de­mand

Austin American-Statesman - - BUSINESS - By Chris Kahn

NEW YORK — The ma­jor oil com­pa­nies are con­tin­u­ing to climb back from the re­ces­sion, with higher fuel prices driv­ing up earn­ings.

Af­ter set­ting record prof­its in 2008, the oil in­dus­try tanked last year as the global eco­nomic down­turn in­duced a dra­matic drop in oil and nat­u­ral gas prices. On Thurs­day, Exxon Mo­bil Corp. said it earned $7.56 bil­lion in the sec­ond quar­ter, an in­crease of 91 per­cent from the same quar­ter last year and the com­pany’s best re­sult since the last three months of 2008.

Royal Dutch Shell Group PLC posted a 15 per­cent gain in net in­come. On Wed­nes­day, Hous­ton-based Cono­coPhillips said its net in­come nearly tripled in the April-June pe­riod from a year ago. Chevron Corp. is due to re­port its quar­terly re­sults to­day.

The jump in prof­its comes as oil com­pa­nies wait out a ban on deep­wa­ter drilling in the Gulf of Mex­ico that is sched­uled to last un­til Nov. 30. Shell took a $56 mil­lion charge for idling its rigs while Exxon halted work on an ap­praisal well and sus­pended op­er­a­tions at one of its Gulf plat­forms.

But their op­er­a­tions are so vast that the im­pact is likely to be min­i­mal. And both re­main com­mit­ted to drilling in deep wa­ter around the globe, in­clud­ing the Gulf. Exxon con­tin­ues to ex­plore the deep wa­ters off coun­tries such as

In­done­sia and the Philip­pines.

“Slight de­lay in the Gulf, but we’re pro­ceed­ing full speed ahead in the rest of the world,” said David Rosen­thal, an Exxon vice pres­i­dent, in a con­fer­ence call with in­vestors.

Shell said it plans to wait out Amer­ica’s six-month ban on ex­ploratory drilling.

“We are just try­ing to keep the rigs warm, ready to start up again,” said Simon Henry, Shell’s chief fi­nan­cial of­fi­cer.

For BP PLC, of course, the Gulf is of para­mount im­por­tance at the moment. The Bri­tish oil com­pany will be pay­ing for years for the oil spill set off in April when the Deep­wa­ter Hori­zon rig ex­ploded and sank. BP took a charge of $32.2 bil­lion to cover the costs that it can re­li­ably es­ti­mate at this time. On Tues­day, it re­ported a record quar­terly loss of $17 bil­lion.

BP, how­ever, re­mains com­mit­ted to deep­wa­ter projects and plans to be­gin drilling a deep­wa­ter well off the coast of Libya in com­ing weeks.

Ar­gus Re­search an­a­lyst Phil Weiss said Exxon, BP and Shell have no choice but to keep ex­plor­ing the deep sea. Most of the world’s oil re­serves are in the hands of state-owned com­pa­nies, he said. “Deep­wa­ter is one of the few places where they can grow.”

For its sec­ond quar­ter, Irv­ing-based Exxon’s net in­come nearly dou­bled as oil prices rose to an av­er­age of $78.16, com­pared with an av­er­age of $59.80 dur­ing the same pe­riod last year. Rev­enue in­creased 24 per­cent to $92.5 bil­lion. The com­pany boosted oil and nat­u­ral gas pro­duc­tion by 8 per­cent, and its re­fin­ing mar­gins also im­proved as de­mand for gaso­line in­creased.

Per-share earn­ings rose to $1.60 from 81 cents. How­ever, an­a­lysts had ex­pected $1.46 per share on rev­enue of $98.5 bil­lion, help­ing to drop Exxon shares to a slight loss Thurs­day.

Un­like BP and Shell, Exxon does a rel­a­tively small por­tion of its busi­ness in the Gulf of Mex­ico. The bulk of its in­come comes from ex­plo­ration and pro­duc­tion op­er­a­tions in for­eign wa­ters, par­tic­u­larly in Africa, Asia and the Mid­dle East. Earn­ings from pro­duc­ing oil and nat­u­ral gas out­side the U.S. rose to $4.47 bil­lion from $3 bil­lion in the sec­ond quar­ter.

De­spite its com­par­a­tively small foot­print in the Gulf, Exxon is tak­ing the lead in an in­dus­try ef­fort to han­dle fu­ture oil spills and per­suade the govern­ment to lift the mora­to­rium. Exxon, Shell, Cono­coPhillips and Chevron are plan­ning to build a $1 bil­lion net­work of emer­gency re­spon­ders that can fix off­shore oil spills in wa­ter as deep as 10,000 feet.

The in­dus­try is ex­pect­ing changes in how busi­ness is done in the Gulf. The mora­to­rium and the chance that Congress may elim­i­nate the cur­rent li­a­bil­ity cap for oil spills could com­pel smaller com­pa­nies to drill else­where. That would leave open­ings for the big­ger play­ers.

Cono­coPhillips CEO Jim Mulva told in­vestors that he’d love to ex­pand in the Gulf of Mex­ico, re­plac­ing smaller com­pa­nies that might be scared away by tougher reg­u­la­tions.

“So if smaller com­pa­nies don’t want to con­tinue to par­tic­i­pate, and we see the risk-re­ward and the rules and reg­u­la­tions as OK, we would like to do more in the Gulf of Mex­ico,” Mulva said.

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