Exxon May Lead Drop in Global Oil Profits on Lower Prices

The world’s largest oil companies are poised to report a drop in second-quarter earnings after crude prices declined for the first time in three years.

Exxon Mobil Corp. (XOM), the world’s biggest oil company by market value, will probably say tomorrow net income dropped 13 percent from a year earlier to $9.3 billion dollars, based on the average of five analysts’ estimates compiled by Bloomberg. Royal Dutch Shell Plc (RDSA), Europe’s top oil producer, is expected to see profit decline 4 percent after adjusting for certain gains and losses.

“We expect earnings to be down and for companies to miss the current consensus,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “The oil price is the single biggest factor, and U.S. gas prices were particularly anemic. The one area that looks good is refining margins.”

Brent crude futures, a benchmark oil price used by much of the world, fell 7 percent from a year earlier to average $108.76 a barrel in the second quarter, the first year-on-year decline since 2009 as economic growth slowed in China and concerns mounted that the European debt crisis will erode demand.

Oversupplies from burgeoning shale-field output in the U.S. pushed natural-gas prices down 46 percent to average $2.354 per million British thermal units. Slumping prices more than offset gains in production, including the return of Libyan fields, and widening refining margins in the U.S. and Europe.

Lackluster Operations

Exxon, Shell, Statoil ASA (STL), BG Group Plc (BG/) and Spain’s Repsol SA (REP) all report tomorrow. Chevron Corp. (CVX) and Total SA (FP) will announce earnings on July 27 and BP Plc (BP/) on July 31.

Shares were mixed today. Shell rose 0.8 percent to 2,187 pence in London. BG fell 1.3 percent, while BP added 0.2 percent.

“With earnings momentum negative, underlying operational performance lackluster and a perception that earnings risk across the reporting season is more heavily weighted to the downside, it is difficult to see 2Q reporting as a positive catalyst for the group,” Deutsche Bank AG analysts said in a July 20 note.

The bank expects earnings across European integrated oil companies to drop 7 percent.

The 13 members of the New York Stock Exchange Arca Oil Index, which includes Exxon, Shell and BP, fell an average 14.4 percent in the last 12 months.

BP, Europe’s second-largest oil company, is expected to be among the worst performers in the second quarter, posting a 14 percent drop in adjusted net income, according to analyst estimates compiled by Bloomberg. Maintenance work on production platforms in the Gulf of Mexico and delays starting up fields in Angola restrained output, according to Deutsche Bank. In refining and marketing, profit probably rose 10 percent.

24 Percent Drop

Shell had a better quarter than its London-based rival, driven by gains in production from new fields even as maintenance cut output from the Gulf of Mexico fields and the Pearl gas-to-liquids plant in Qatar.

In the U.S., analysts at Barclays Plc (BARC) said the largest companies probably earned 24 percent less than a year earlier because of the drop in oil and gas prices.

Chevron Corp., the second-largest U.S. producer, is expected to have earned $6.4 billion during the quarter, according to analysts’ estimates.

“Although oil remains elevated in absolute terms, Brent was down, while exploration and production volumes will be seasonally lower,” Nomura analysts led by Theepan Jothilingam said in a research note. “In the U.S., Henry Hub prices remained depressed throughout the quarter.” Henry Hub in Erath, Louisiana, is the delivery point for futures traded on the New York Mercantile Exchange.

Oil demand in U.S. and China, which together consume almost one-third of the world’s crude, stagnated at 28.2 million barrels a day, little changed from a year earlier, according the International Energy Agency.

To contact the reporters on this story: Will Kennedy in London at wkennedy3@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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