[OiL FUTURES] High energy prices lift earnings for BP and Royal Dutch Shell

OiL FUTURES: High energy prices lift earnings for BP and Royal Dutch Shell
Higher oil and natural gas prices helped Royal Dutch Shell and BP report record first-quarter profits Tuesday, beating analysts' expectations and prompting share gains across the industry.

The two biggest oil companies in Europe more than offset declining refining margins as crude oil nears $120 a barrel. A move by investors to commodities as an alternative to the shrinking dollar, combined with a spate of supply disruptions, helped to push U.S. crude futures to a record $119.93 on Monday.

Shell's net income in the first three months of the year rose 25 percent to $9.08 billion. BP reported its profit increased 63 percent to $7.62 billion. Shares of Shell and BP trading in London rose more Tuesday than they had in at least two years, leading other oil companies, like ConocoPhillips and ExxonMobil, higher.

"The results are very good because of the high oil price but also without it because we had expected the refining margins, which collapsed, to affect earnings," said Christine Tiscareno, an oil analyst at Standard & Poor's in London. "Both companies did an excellent job controlling costs."

Tiscareno and other analysts warned that while a rising oil price might for now benefit Shell and its rivals, it would at some point start to hurt demand for gasoline, as customers became unable to afford the higher prices. Peter Voser, chief financial officer at Shell, told analysts during a conference call that it was "too early" to say how and when the higher oil price would affect demand.

Despite recent disruptions at BP, oil and natural gas production was unchanged at 3.9 million barrels of oil-equivalent a day, while output at Shell remained unchanged at 3.5 million barrels of oil-equivalent a day. BP closed a pipeline system Sunday after a strike at a refinery in Scotland cut supplies. Some investors are particularly worried about supplies from Nigeria, which produces the higher quality crude needed in the United States to meet the demand that is expected to increase during the upcoming summer driving season. This month, five police officers guarding an oil terminal in Nigeria were killed by armed militants, who aim to damage exports from the oil-rich Niger Delta.

Shell said attacks in Nigeria had halted 164,000 barrels of oil-equivalent a day of production in the country. Voser said Shell planned to invest up to $27 billion to add one million barrels a day of production.

To improve earnings, Tony Hayward, who succeeded John Browne as chief executive of BP last year, is focusing on restoring production capacity and finding new projects. BP began oil production at the Deep Water Gunashli field in the in the Azerbaijan section of the Caspian Sea this month and expects its Thunder Horse production platform in the Gulf of Mexico, which cost more than $1 billion to build, to start production this year following a three-year delay. The company also completed some repairs at its plant in Whiting, Indiana, and the Texas City refinery, where an explosion killed 15 people in 2005.

Edward Westlake, an analyst at Credit Suisse in London, said that the earnings were "strong" and that the "results have captured increases in oil and gas pricing, while keeping costs increases muted."

BP and Shell are both trying to regain investor confidence damaged by delays and higher costs associated with new projects last year. In the case of BP, a lack in safety measures led to the Texas explosion. Hayward pledged to remove layers of bureaucracy to make managers more accountable for their businesses and improve efficiency.

Oil companies are also under pressure to find new projects to grow as its traditional fields age. They are also facing competition with state-run oil companies in Russia and the Middle East.

Other oil companies that profited from higher prices included ConocoPhillips, whose first-quarter profit rose 17 percent to $4.14 billion. ExxonMobil, the world's largest oil company, is set to report its figures May 1, followed the next day by Chevron.

Source: International Herald Tribune| by By Julia Werdigier

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