Exxon Mobil Corp., BP p.l.c. and the Shell Group of companies had some good news and some bad news for their shareholders last week. The good news: they made a profit. The bad news: for each of them it was somewhere between 36-40% less than last year. Mitigating factor: last year’s 2Q was at record highs. The culprits: lower gas and oil prices and a drop in refinery returns this year.

Exxon Mobil reported second quarter earnings of $2.64 billion ($0.39 per share) a drop of 40% from $4.46 billion, or 65 cents a diluted share in the same period last year. What was worse was that the company had fooled the analysts, coming in 7 cents per share below the consensus estimate compiled by Thomson Financial/First Call.

Shell preferred to stress the fact that its returns were definitely positive. “These results demonstrate the Group’s continued ability to deliver robust profitability in uncertain times,” said Philip Watts, chairman of Shell. But on a year to year basis, Shell group’s adjusted current cost of supplies (CCS) earnings, excluding special items, of $2.21 billion in the second quarter were 38% lower than 2Q 2001’s $3.61 billion. The decline, the company said, “was primarily due to the much weaker refining environment, and lower oil, gas and liquefied natural gas (LNG) prices.”

BP’s second quarter pro forma result, adjusted for special items, was $2.18 billion in the just completed quarter, compared with $3.43 billion a year ago, a reduction of 36%. For the first six months, the result was $3.76 billion compared to $7.14 billion. Nevertheless, the company said “performance and growth [is] firmly on track,” and increased the quarterly common stock dividend to $6 from $5.50 at this time last year.

Exxon Mobil’s Chairman Lee R. Raymond and Treasurer Frank A. Risch stood behind their numbers, filing sworn statements with the Securities and Exchange Commission attesting to the company’s SEC filings. Raymond and Risch were in advance of the deadline set by the federal government for the chief executives of all U.S. firms to sign sworn statements backing up financial reports.

Exxon Mobil saw upstream earnings fall to $2,153 million, down $697 million from the second quarter record achieved in 2001. This reflected a 6% decline in crude oil realizations and a 35% reduction in North American natural gas prices.

Second quarter natural gas production of 9.17 Bcf/d compared with 9.09 Bcf/d last year. Part of the fall-off was attributed to natural gas field decline in the U.S., which saw a drop in production from 2.61 Bcf/d in the second quarter of 2001 to 2.37 Bcf/d in 2Q 2002.

Earnings from Exxon Mobil’s U.S. upstream operations were $674 million, a decrease of $437 million from the prior year, reflecting the sharp decline in natural gas prices. Upstream earnings outside the U.S. were $1,479 million, a decrease of $260 million, reflecting lower crude oil and natural gas prices.

Shell’s exploration and production adjusted earnings of $1,809 million were down from $2,185 million a year ago, as an 8% increase in production “was more than offset by lower hydrocarbon prices.”

Shell’s Gas & Power division showed adjusted earnings of $149 million compared to the record $390 million achieved a year ago. The lower earnings mainly reflected lower prices for LNG and positive, but lower trading results in the U.S.

Shell said its worldwide gas production had increased to 8.39 Bcf/d in the second quarter 2002, compared to 8.16 Bcf/d in the same period last year.

In announcing its lower results BP pointed to oil realizations down nearly $4/bbl, natural gas realizations down nearly $2/Mcf, and the indicator refining margin down over $3/bbl in the first half of the year, compared to last year’s first half. Demand for most chemical products has improved, but margins remain weak, the company said.

“The world economy continued to recover during the second quarter and further growth is expected in the third quarter, though recent financial market weakness poses a downside risk to this economic outlook,” said BP CEO Sir John Browne.

Noting that “crude oil prices have remained firm,” Browne said “realized prices are expected to remain close to the range experienced in the second quarter, assuming OPEC production continues around current levels.” U.S. natural gas prices, however, “have softened and are at a discount to residual fuel oil. Gas in storage is at a high level and summer injections to date have been strong, despite the commissioning of new gas-fired power generation capacity.” He expects to see lower gas prices in the third quarter.

BP’s worldwide natural gas production was up slightly to 8.67 Bcf/d from 8.55 Bcf/d, while U.S. 2Q 2002 production was 3.57 Bcf/d, up from 3.55 Bcf/d. U.S. natural gas price realizations, however, were down significantly, from $4.35/Mcf in 2Q 2001 to $2.76/Mcf in the most recent quarter. Worldwide BP’s gas price averaged $2.45/Mcf in the second quarter this year, down from $3.43/Mcf in the same period last year. “North American gas realizations also suffered from widening regional differentials to the Henry Hub marker caused by short-term transportation capacity restrictions from the San Juan and Rockies basins,” the BP statement said.

Worldwide BP marketed 19.8 Bcf/d of natural gas compared to 18 Bcf/d in the second quarter of 2001. In the U.S., however, gas marketing was down somewhat to 8.45 Bcf/d in the most recent quarter, from 8.52 Bcf/d last year.

The pro forma result for the second quarter in gas, power and renewables marketing was $114 million, compared with $161 million a year ago. The reduction in the second quarter result is due to less volatile trading conditions compared to the second quarter of 2001, BP said.

“Full year production remains on track to grow at our target annual rate, as new projects, including King’s Peak, Horn Mountain and Princess in the Gulf of Mexico and Trinidad LNG train 2, are due on stream during the second half of the year,” Browne said. Also, “capital expenditure is on track for the upper end of the year’s target range of $12-13 billion, excluding acquisitions. The net debt ratio was below the mid-point of the 25-35% range at the end of the second quarter and is likely to remain relatively stable around this level.”

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