Oil Companies Boost Profits as Supply Falls

Nov. 2, 2011 - PRLog -- Exxon Mobil, Royal Dutch Shell and BP reported a surge in quarterly profits this week even though they're producing less oil from fields around the world, including a combined 7 percent decline in the third quarter that just ended. Each company has devoted billions of dollars to finding new petroleum deposits, but it could be years, even decades, before those investments translate to more oil and natural gas. All major oil and gas companies have benefited from higher oil price; Chevron and Total have also reported sharp rises in third quarter profit. The rise in oil prices over the last year has spurred the drilling activity, but it may be difficult for oil companies to sustain the earnings momentum since they will face stiffer earnings comparisons in the fourth quarter and into 2012. Also, natural gas prices have been weakening. Oil prices began a steady climb at the end of last year because of expectations that the global economy was recovering and sudden fears of supply shortages as political turmoil began spreading across North Africa and the Middle East. Oil and natural-gas production fell 3.8 percent to the equivalent of 4.28 million barrels of crude a day, the largest decline since the third quarter of 2008, according to Bloomberg data.

Exxon’s third-quarter profits are $10.33 billion, a 41% increase, the second-largest among major international oil companies that have announced third-quarter results. Only Royal Dutch Shell Plc, the world’s third-largest energy company by market value behind Exxon and PetroChina Co., boasted a larger jump, by doubling net income to $7 billion. The last time Exxon’s profits exceeded $10 billion for three consecutive periods was 2008, when Brent oil touched an all-time record of $147.50 a barrel and the company reaped $45.22 billion in full-year net income. So far this year, Exxon shares have risen 12 percent, poised for the best annual performance since 2007.

Big Oil's third-quarter financial results highlight a growing problem within the industry. New petroleum sources are increasingly tough and expensive to locate. The best new deposits are found more than a mile under the ocean, in vast layers of sticky Canadian sand or in the frigid Arctic. Many energy experts say oil prices can remain at current high levels, but only if Europe averts a financial collapse, the United States avoids another recession and China, India and other developing countries continue to grow strongly. A survey released this week showed that demand for gasoline in the United States declined by 2.8 percent for the week ending Oct. 21, compared with a year ago. Demand in Europe has also eased, although it has been more resilient in developing countries. Experts say smaller companies will need to step up to satisfy growing world demand. China, India and other developing nations are expected to push the global appetite for oil to a record 90 million barrels per day next year, enough to outstrip supplies.

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