Oil prices point to hefty profits, but refining margins to temper results and the crude prices that hovered at or above $90 through most of the last three months of 2007 are expected to mean pumped-up quarterly profits as the largest oil companies report their earnings in coming weeks.
Profits for the full year, however, may not surpass 2006 levels for some companies, largely because U.S. refining margins tightened as prices for gasoline and other fuels made with crude lagged behind the hike in crude prices.
Houston-based ConocoPhillips will kick off the series of fourth-quarter and year-end 2007 earnings releases on Wednesday. The Hague-based Royal Dutch Shell and Houston-based Marathon Oil Corp. are scheduled to report results Jan. 31, followed by Irving-based Exxon Mobil Corp. and San Ramon, Calif.-based Chevron Corp. on Feb. 1. London-based BP will report on Feb. 5.
The dramatic increase in oil prices — an average of about $91 a barrel throughout the fourth quarter, 51 percent higher than the year-ago period — is expected to produce results that surpass the last three months of 2006. Analysts surveyed by Thomson Financial anticipate higher quarterly results for all five majors — ConocoPhillips, Shell, Exxon Mobil Corp., Chevron and BP.
Profits for the full year, however, may not surpass 2006 levels for some companies, largely because U.S. refining margins tightened as prices for gasoline and other fuels made with crude lagged behind the hike in crude prices.
Houston-based ConocoPhillips will kick off the series of fourth-quarter and year-end 2007 earnings releases on Wednesday. The Hague-based Royal Dutch Shell and Houston-based Marathon Oil Corp. are scheduled to report results Jan. 31, followed by Irving-based Exxon Mobil Corp. and San Ramon, Calif.-based Chevron Corp. on Feb. 1. London-based BP will report on Feb. 5.
The dramatic increase in oil prices — an average of about $91 a barrel throughout the fourth quarter, 51 percent higher than the year-ago period — is expected to produce results that surpass the last three months of 2006. Analysts surveyed by Thomson Financial anticipate higher quarterly results for all five majors — ConocoPhillips, Shell, Exxon Mobil Corp., Chevron and BP.
But some analysts said weak U.S. refining margins and higher exploration and production costs chipped away at what could have been bigger profits in the high-price environment. Multibillion-dollar profits are still in the offing, but not necessarily records.
The refining margin is the difference between what refiners pay for oil and the selling price of gasoline and other products made with it.
"If they're heavy on refining, you'll see a little more weakness," said John Parry, an oil analyst with John S. Herold. "But everybody's going to get a lift in the exploration and production part because of pricing."
Paul Cheng, an analyst with Lehman Bros., said in a recent note to investors that most of the benefit of high crude prices for oil companies will be offset by higher costs and low refining margins.
However, not all refining margins were weak. Simmons & Company International said in a recent preview of fourth-quarter earnings that international refining margins were stronger than those in the U.S.
That bodes better for companies with widespread global refining operations — including Exxon Mobil and Shell — than for ones including ConocoPhillips and Marathon with most refining operations in the United States.
"U.S. margins tanked in the fourth quarter while Europe and Asia held up pretty well," said Lyle Brinker, another analyst with John S. Herold, adding that that situation may help Shell more than Exxon Mobil because Shell has potentially higher exposure to those two markets. "But Exxon and Shell will be the best downstream performers."
The Simmons preview noted that other concerns include production shortfalls from lack of new reserve additions, in part because of shrinking access to resources controlled by other countries.
Also, companies likely received less oil under production-sharing contracts with foreign countries, such as oil-rich Angola and Nigeria. Such contracts often involve payment for their investments in barrels of oil. The higher the price per barrel, the fewer barrels they receive.
The refining margin is the difference between what refiners pay for oil and the selling price of gasoline and other products made with it.
"If they're heavy on refining, you'll see a little more weakness," said John Parry, an oil analyst with John S. Herold. "But everybody's going to get a lift in the exploration and production part because of pricing."
Paul Cheng, an analyst with Lehman Bros., said in a recent note to investors that most of the benefit of high crude prices for oil companies will be offset by higher costs and low refining margins.
However, not all refining margins were weak. Simmons & Company International said in a recent preview of fourth-quarter earnings that international refining margins were stronger than those in the U.S.
That bodes better for companies with widespread global refining operations — including Exxon Mobil and Shell — than for ones including ConocoPhillips and Marathon with most refining operations in the United States.
"U.S. margins tanked in the fourth quarter while Europe and Asia held up pretty well," said Lyle Brinker, another analyst with John S. Herold, adding that that situation may help Shell more than Exxon Mobil because Shell has potentially higher exposure to those two markets. "But Exxon and Shell will be the best downstream performers."
The Simmons preview noted that other concerns include production shortfalls from lack of new reserve additions, in part because of shrinking access to resources controlled by other countries.
Also, companies likely received less oil under production-sharing contracts with foreign countries, such as oil-rich Angola and Nigeria. Such contracts often involve payment for their investments in barrels of oil. The higher the price per barrel, the fewer barrels they receive.
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