Oil company profits soar on record prices

The average price of a barrel of oil was slightly less than $125 in the quarter, nearly double last year, which also increased earnings at Royal Dutch Shell, Eni and Repsol, three of Europe’s largest oil companies. The enormous profits drew criticism from politicians because of the high gasoline prices being paid by consumers. “We are making very large profits, I know that,” Shell CEO Jeroen van der Veer told reporters on a conference call, responding to the criticism. “But we are making very large investments," he said, referring to investments in exploration and production.

Exxon’s net income rose 14% to $11.68 billion, or $2.22 a share, in the quarter. Excluding one time items, Exxon earned $2.27 a share, more than a quarter below analyst expectations, according to Reuters Estimates. Shell, the world’s second-largest non-government controlled oil company by market value, reported a 5% rise in Q2 current cost of supply (CCS) net income to $7.9 billion, and said that excluding one-time items, it beat analysts’ forecasts. Italy’s Eni SpA posted a 4.4% rise in Q2 adjusted net profit, below analysts’ forecasts, as higher taxes weighed on its results.

Spain’s Repsol YPF said its H1 adjusted net profit rose 15% to €1.883 billion, well ahead of analysts’ forecasts, because of high oil prices. Adjusted net profit strips out gains from changes in the value of inventories, as does CCS earnings, and non-recurring items. The companies’ upstream oil and gas production units were the main profit divers because of high oil prices. But production figures held some disappointments for investors.

Exxon’s oil and gas production fell 8% from a year earlier, mostly due to the loss of assets taken over by Venezuela, a labor strike in Nigeria, and contracts that give host countries a larger share of production as oil prices rise. Shell said output fell 1.6% in the second quarter, compared to the same quarter last year, to 3.126 million barrels of oil equivalent per day (boepd), while Repsol’s production fell 19.7% to 335,000 boepd in the H1. Eni said Q2 production was 1.77 million boepd, up 2.1% from the year before, and added that based on lower oil prices output would rise 2% in 2008, compared to an earlier forecast of 3.7%.

Western oil companies’ output has fallen in recent years and oil producing countries now prefer to award their richest fields to their own national oil companies. Shell’s ‘A’ shares traded up 0.5% at 1846 pence at 11:23 a.m., Eni shares fell 0.5% to €21.93 and Repsol shares rose 1.7%, lagging a 2.1% rise in the DJ Stoxx European oil and gas sector index. Downstream refining and marketing profits fell at the companies, as crude processing margins tightened, and retailers found it hard to pass on full price increases to motorists.

Shell’s CEO, Peter Voser, said downstream results fell 70% at the Anglo-Dutch oil major. Eni said refining and marketing profits fell 23% in the quarter, while Repsol’s downstream profits fell 2% in the H1. Record profits at oil companies on both sides of the Atlantic have led to calls from environmentalists, labor unions and some politicians for windfall taxes on major oil companies. Shell’s Jeroen van der Veer argued on Thursday against windfall taxes, saying high profits were necessary to cover the investments needed to secure energy supplies for the future. (Reuters)