Exxon, Shell profits bubble higher with oil prices

By Tom Bergin and Anna Driver

LONDON/HOUSTON (BestGrowthStock) – The world’s biggest oil companies, Exxon Mobil (XOM.N: ) and Royal Dutch Shell (RDSa.L: ),

reported sharply higher third-quarter profit (Read more your timing to make a profit.)s on Thursday, beating analysts’ forecasts, as rising energy demand drove up oil and gas prices and fattened refinery margins.

Oil prices climbed 12 percent in the quarter from a year earlier on the back of the global economic recovery and strong demand from China, which became the world’s largest energy user this year.

That helped boost Exxon’s quarterly profit 55 percent and Shell’s profits by 88 percent after one-time items.

The companies are the world’s two largest oil companies not owned by governments, and their profits both topped analysts’ average forecasts, lifting their shares.

Shares in oil companies have performed strongly in the past several weeks after a dismal first half of the year. The Chicago Board of Options Exchange’s oil company index (.OIX: ) has rallied nearly 17 percent since mid-August, putting it nearly flat for the year.

Earlier this month, the International Energy Agency raised its 2010 oil demand forecast by 260,000 barrels per day to nearly 87 million bpd, but reduced its forecast for 2011 to 88.16 million bpd.

Share prices could see even further gains if gas prices in the world’s biggest economy rebound from their dive in recent weeks, according to Iain Armstrong, an analyst at Brewin Dolphin, a likely scenario since U.S. oil prices have moved to a high premium versus gas.

“Maybe the natural gas price in the U.S. might be the surprise next year,” he said.

The U.S. gas market has been undergoing a boom with the development of shale rock formations, drawing investments from energy companies around the globe and prompting Exxon expand its operations with the $27 billion purchase of XTO Energy earlier this year.

That growing market, as well as the dividend payouts from the cash-rich oil companies, is likely to draw more investors to the sector,

“Exxon has a dividend yield of 2.7 percent, and that’s a lot better than you can do in a money market. I think these blue chips are attractive to people wary of the market,” said Mike Breard, an energy analyst with Hodges Capital Management in Dallas.

Exxon’s net income rose 55 percent to $7.35 billion compared with the same quarter in 2009, ahead of forecasts of $7.26 billion. Revenue grew 16 percent to $95.3 billion.

Royal Dutch Shell Plc, Europe’s largest oil company by market value, said net income on a current cost of supply (CCS) basis rose 18 percent to $3.52 billion, but rose 88 percent after stripping out one-off items and more than $1 billion in non-cash charges.

Italy’s Eni SpA (ENI.MI: ) also comfortably beat analyst forecasts with a 47.5 percent rise in adjusted, or underlying, net profit to 1.7 billion euros. while China’s Sinopec (0386.HK: ), Asia’s largest refiner, said net profit rose 15 percent.

Higher natural gas prices — up 29 percent in the United States and double third quarter 2009 levels in Britain — also helped.

On Wednesday, ConocoPhillips (COP.N: ), the No. 3 U.S. oil company, said its quarterly profit more than doubled, beating analysts’ predictions.

OIL SPILL AFTERMATH

Even with the moratorium on drilling it the Gulf of Mexico, Shell, the No. 2 producer in the key basin, boosted its oil and gas output 5 percent to 3.1 million barrels of oil equivalent per day (boepd), just ahead of forecasts.

Shell’s output has fallen sharply in recent years and strong gains in recent quarters suggest the company has turned the corner to growth, analyst Peter Hitchens at brokerage Panmure said.

Exxon’s output jumped 21 percent, due largely to its acquisition of U.S. natural gas producer XTO Energy.

Eni said output rose 1.5 percent.

Shell and Eni said their output was hit by the U.S. deep water drilling halt, imposed because of the BP Plc (BP.L: ) oil spill and which ended earlier this month.

Shell’s chief financial officer, Simon Henry, said the drill ban forced Shell to idle rigs in the Gulf of Mexico at a cost of $115 million so far this year.

Canceled drilling plans and expected delays in receiving new drilling permits will likely reduce the company’s 2011 output by 40,000 barrels per day, Henry told a conference call with reporters.

The companies all enjoyed big rebounds in earnings at their refining units in the quarter compared with the same period last year. However, analysts are not sure it will last.

“Our outlook for refining, and European refining in particular, remains very cautious,” analysts at Bernstein said in a research note.

(Writing by Matt Daily and Tom Bergin; Additional reporting by Stephen Jewkes in Milan; Editing by David Cowell, David Holmes, Dave Zimmerman)

Exxon, Shell profits bubble higher with oil prices