July 24 (Bloomberg) -- BP Plc may outperform Royal Dutch Shell Plc and Total SA on production after ramping up operations in the Gulf of Mexico, even as slumping crude prices hurt second-quarter earnings at Europe’s biggest oil companies.

Almost two years into a turnaround at the region’s second- largest oil explorer, BP Chief Executive Officer Tony Hayward is boosting output and cutting costs in anticipation of an eventual economic recovery. In contrast, Shell and Total suffered from militant attacks against their operations in Nigeria, while Total also bore the brunt of OPEC supply cuts in Angola.

“We are really seeing production growth now at BP, while Shell is going the other way,” Ivor Pether, who is part of a team that manages about $9.8 billion at Royal London Asset Management, said in an interview. “BP has shown some momentum in term of its recovery,” said Pether, who holds 80 million BP shares and 25 million Shell shares.

BP is likely to report July 28 that second-quarter profit excluding one-time items and inventory changes slumped 67 percent to $2.81 billion from $8.63 billion last year, based on the median estimate of 14 analysts compiled by Bloomberg. Shell’s earnings due July 30 may have declined to $2.43 billion from $7.83 billion, a survey showed. Total may say a day later that earnings adjusted for its stake in drugmaker Sanofi-Aventis SA more than halved to 1.7 billion euros ($2.4 billion).

Beat Forecasts

Earnings for all three companies in the first three months of the year beat analysts’ expectations. BP and Shell reported adjusted profit of $2.58 billion and $2.96 billion respectively. Total reported earnings of 2.1 billion euros ($3 billion) on that basis.

That followed BP’s first loss in seven years in the fourth quarter and Shell’s first in a decade after crude futures plunged from a record $147.27 in July. Total had its first net loss in at least five years in the three months ending Dec. 31.

Exxon Mobil Corp., the largest U.S. oil company, will release results on July 30. It’s expected to post adjusted earnings per share of 98 cents, according to the average of 16 estimates.

“BP is likely to post better quarter-on-quarter earnings performance than its peers, with the best production growth year-on-year,” Bertrand Hodee, an analyst at Kepler Capital Markets in Paris, wrote in a note to clients.

BP may post a 4.2 percent increase in second-quarter output, compared with expected declines of 3.6 percent and 5.1 percent respectively for Shell and Total, according to ING Wholesale Banking.

Plunging Prices

U.S. oil futures averaged $59.79 a barrel in the second quarter, 52 percent lower than a year earlier. Falling demand for natural gas in Europe as a result of the recession is likely to weigh on earnings for Shell and Total, in contrast to BP which is less exposed to gas prices, according to Citigroup Inc.

BP is down 1.6 percent this year, compared with a 12 percent decline for The Hague-based Shell and 4.1 percent gain for Total. All three have underperformed the 40-member Dow Jones Europe Oil & Gas Index, which is up 13 percent.

BP was little changed at 510.9 pence in London trading, while Shell was up 4 pence at 1,583 pence. Total fell 0.5 percent to 40.19 euros in Paris.

Shell spokesman Rainer Winzenried said on July 22 the average estimate of a “fair number” of analysts surveyed by the company was for earnings of $2.4 billion.

BP spokeswoman Sheila Williams said the average estimate of 27 brokers was for profit of $2.78 billion, with estimates ranging from $2.40 billion to $3.28 billion.

Cutting Costs

In an interview last month, Hayward said BP is boosting volumes and cutting costs faster than any of its competitors.

“We have a lot of momentum in oil production, more than anyone else at the moment,” Hayward said.

BP reversed two years of falling output in 2008 when total production rose to 3.8 million barrels of oil equivalent a day. Production at Shell fell 2 percent to 3.25 million barrels equivalent a day last year while Total’s oil and gas output declined 2 percent to 2.34 million barrels.

In October 2007, Hayward pledged to close an operational gap with rivals and regain investor confidence after a fatal explosion at a U.S. and delays in starting projects.

BP’s Texas City refinery has since returned to full service and the company is the largest producer in the Gulf of Mexico after increasing output at the delayed Thunder Horse platform to more than 300,000 barrels of oil equivalent a day. It forecasts annual output growth of 1 and 2 percent up until 2013.

‘Back on Track’

“Everybody in the sector will be down substantially” because of lower oil prices, said Colin Morton, who is part of a team that manages $2 billion at BWD Rensburg Ltd. in Leeds, northern England. With regard to BP, “a lot of underperformance now seems to be back on track, which is going to help them in these difficult times,” he said.

Under newly-appointed Chief Executive Officer Peter Voser, Shell is emulating BP in streamlining operations by consolidating three units into two, focused on the Americas and the rest of the world.

Militant attacks in Nigeria have forced Shell to shut plants, cutting onshore oil production to 140,000 barrels of oil equivalent a day in June. In 2004-2005, Shell pumped as much as 1 million barrels a day from the West African nation’s fields along with its partners.

Shell last month pledged to increase output through 2020 from existing reserves by designing new projects that can produce more than 1 million barrels a day. It expects oil and gas output to drop for a seventh year in 2009 before rebounding in 2010.

Total CEO Christophe de Margerie said earlier this year that OPEC has been more “reactive” in curbing output to stem a slide in prices.

Seasonal maintenance at North Sea fields is also likely to have held back output at Total, said Hodee at Kepler Capital Markets.

To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.netEduard Gismatullin in London at egismatullin@bloomberg.net

Last Updated: July 24, 2009 12:23 EDT