For oil companies, idle times in Gulf no barrier to profit
Exxon’s best quarter since ’08 fed by rises in prices, demand
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.