Oil company profits up while prices decline slightly on signs of strengthening dollar

The Associated Press

4/29/2008

LONDON and AMSTERDAM, Netherlands — Profits for two European oil companies rose faster than the speeding numbers on the diesel pump, according to reports available today.

Royal Dutch Shell PLC reported a 25 percent rise in first-quarter earnings on Tuesday, crediting strong increases in oil prices.

Europe's largest oil company said its average selling price of crude oil leaped by 66 percent to more than $90 per barrel from the first quarter a year ago.

That sent net profit soaring to a record $9.08 billion, up from $7.28 billion. Sales rose 55 percent to $114 billion.

Meanwhile, BP PLC, Europe's second biggest oil producer, reported a 63 percent surge in first quarter net profit on Monday after crude oil prices soared to an all-time high and natural gas prices also rose.

BP posted net profit for the first quarter of 2008 of $7.6 billion (4.9 billion euros), compared with $4.4 billion in the first quarter of 2007.

The jump in net profit and accompanying 44 percent rise in revenue to $89.2 billion (57.1 billion euros) were well ahead of analysts' expectations.

Analysts said the Shell performance was impressive, especially because expectations were already high.

Shell "delivered a very robust overall performance, with all the divisions outperforming the consensus and our estimates," wrote analyst Alexandre Weinberg of Petercam in a note on the earnings.

"Exploration and production numbers were clearly impressive, in spite of higher industry costs and the weak dollar. ... Flow generation from higher hydrocarbon prices might be underestimated for the entire group of majors."

Chief Financial Officer Peter Voser said on a conference call the company wasn't investing money in projects that would require oil prices to remain this high to be profitable. "We don't understand the oil price at this stage," he said. "The fundamentals will not justify an oil price as we see it at the moment."

He said the company is wary of predicting prices apart from a long-term upward trend, but said economists had expected demand to slacken in response to the high prices and with the U.S. economy slowing. However, he said that has so far failed to materialize because of continuing growth in the rest of the world.

He cited a mix of other factors pushing up oil prices including the weak dollar, a rush of speculation on commodities, and ongoing political concerns in the Middle East and in Nigeria.

Evolution Securities analyst Richard Griffith said BP’s results showed that operational improvements BP Chief Executive Tony Hayward made his priority when he took the reins a year ago are well advanced.

Hargreaves Lansdown analyst Keith Bowman said BP had posted "an exceptional set of numbers."

"Although this should not come as a complete surprise, given historically high energy prices, management have been battling against a serious of operational difficulties and the results may indicate that challenges are being won," he added.

BP shares jumped 5.5 percent to 610 pence ($12.05).

Hayward, who replaced John Browne, has focused on bringing new production and refining capacity online to improve earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Royal Dutch Shell PLC.

BP's closely watched replacement cost profit rose 48 percent to $6.59 billion (4.34 billion euros), compared with $4.44 billion in the first quarter of 2007.

The replacement cost figure is viewed by many analysts as the best measure of an oil company's underlying performance.

Crude oil reached hit a then-record $111.80 per barrel during the quarter in March, while gas jumped an average of 22 percent over the quarter. Crude reached an all-time record $119.93 on Monday.

BP said its total oil and gas production for the first quarter of this year was unchanged at 3.91 million barrels of oil equivalent a day due to the impact of lower entitlement in production sharing agreements. Adjusted for the impact of these agreements, BP said production was 5 percent higher than the first-quarter of 2007, reflecting the ramp up of new projects in the fourth quarter.

Oil prices fell this morning amid expectations that a supply disruption in Britain would soon be resolved and as the U.S. dollar strengthened further against the euro. Light, sweet crude for June delivery fell $1.70 to $117.05 a barrel in electronic trading on the New York Mercantile Exchange.