With fourth quarter and full-year earnings reports days away, oil and gas producers are preparing shareholders for underwhelming results.

BP plc has taken it on the chin since the beginning of the year after some top energy analysts slashed their quarterly earnings estimates for the London-based major. In recent days both Merrill Lynch and Credit Suisse have reduced their forecasts for BP by around 25% because of an expectation that the company will report higher expenses, higher taxes and lower margins when it issues its earnings report. Citigroup in turn cut its forecast by 20%; Evolution Securities dropped its expectations by 32%. ABN Amro cut its quarterly earnings forecast on the oil major by 21% "after speaking with company representatives."

BP has not publicly issued earnings guidance for the final quarter of 2007, but a weekly report published on the company's trading activities apparently spurred analysts into action.

Mark Iannotti of Merrill Lynch wrote that $400 million in commissioning costs for four new oil and gas fields, along with additional costs to restart output in the United Kingdom, Alaska, the North Sea and Azerbaijan, led him to reduce hits targets on BP. He said "unexpected" tax charges of $250 million for BP's Alaska operations contributed to the reduction. BP's overall refining margins, he said, reportedly dropped to 5.68% from 8.05% in the last three months of the year, which reduced its profits.

Chevron Corp., the second largest U.S. producer, reported Thursday that profit in the final three months of 2007 will be higher because of higher commodity prices. "Fourth quarter net income is expected to be higher than the $3.72 billion earned in the third quarter 2007," the San Ramon, CA-based major stated. Oil prices rose to an average of $80.48/bbl from $68.70/bbl in the third quarter. And Chevron's average gas prices rose 5.5% to $5.73/Mcf from $5.43/Mcf the previous three months.

However, margins for Chevron's refined products were weak, and profits are "expected to remain low," the company reported.

Houston-based Marathon Oil Corp. is blaming service costs for an expected downturn in earnings. It reported Wednesday that exploration expenses in the final period were higher than previously expected, mostly because of noncommercial flathead wells in the Gulf of Mexico. Expenses may total between $190 million and $210 million, up from a previous guidance of $110-150 million.

However, Marathon reported that oil and gas production will be at the high end of its projections. Marathon estimated output at about 350,000 boe/d; it had projected it would produce 330,000-355,000 boe/d in 4Q2007.

Royal Dutch Shell has not provided an interim update, but CEO Jeroen van der Veer provided some clues in an interview published in the company's in-house magazine. Among other things, van der Veer said the higher oil prices have led to "active government interest," which in turn "is delaying projects...You might think that higher oil and gas prices might serve to accelerate decision making, but in reality the opposite is true."

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