August 1, 2013 / 1:03 PM / 4 years ago

WRAPUP 3-Costs hit Big Oil; shale surge lifts smaller producers

By Andrew Callus and Anna Driver
    LONDON/HOUSTON, Aug 1 (Reuters) - Some of the western
world's top oil companies abandoned output targets and missed
profit forecasts on Thursday as they promised to clamp down on
rising costs that hurt quarterly results.
    Costs for workers and materials are climbing as the industry
scrambles to bring new wells and pipelines into operation.
    Companies owning refineries, from smaller independents to
majors that have operations in all aspects of the oil business,
also had profits squeezed by price shocks, maintenance work, and
the rising cost of ethanol credits they often buy to comply with
cleaner-fuel rules in the United States.
    In contrast, smaller U.S. producers, which tend to have more
of their operations inside the United States and relatively more
exposure to shale deposits, reported surging output.
    "It's a difficult time for the big integrateds. They are not
seeing production growth, refining margins are deteriorating,
and costs are going up. That's not a good combination," said   
Brian Youngberg, an oil analyst with Edward Jones in St Louis.
    Among a slew of quarterly results on Thursday, Royal Dutch
Shell and Exxon Mobil disappointed Wall Street.
The pair are two of the top three investor-controlled oil
companies in the world. . The
third, Chevron, is due to report results on Friday.
    Shell did what several of its peers did some time ago -
abandon a promise to increase production growth so that it can 
meet its financial targets for cash flow growth and spending. 
    The earnings reports followed a profit miss from industry
No. 4, BP, on Tuesday.    
    Only Total, Europe's No. 3 behind Shell and BP,
impressed investors with its first quarterly rise in production
in three years. 
    Exxon, the world's largest publicly traded oil company
reported a profit of $6.9 billion, down 57 percent from $15.9
billion a year earlier.
    Its oil and natural gas production fell 1.9 percent. The
company is working to put new projects online to replace
declining fields.
    Among smaller U.S. firms, ConocoPhillips reported a
better-than-expected profit and raised its full-year production
    It said output from the Eagle Ford shale field in Texas
almost doubled in the second quarter to 121,000 barrels of oil
equivalent per day. Conoco's combined oil and gas production in
the Eagle Ford shale field, the Bakken shale field in North
Dakota, and Permian Basin in Texas rose 47 percent.
    ConocoPhillips' net income fell 10 percent to $2.05 billion.
Year-earlier earnings included $500 million from downstream
operations before the company spun off Phillips 66 in
May 2012.
    Apache Corp reported a higher quarterly profit, in
line with Wall Street expectations. It sold its Gulf of Mexico
shelf assets last month to focus on onshore production. It said
its North American onshore liquids production rose 42 percent to
175,000 barrels per day in the latest quarter. 
    "We expect Apache to have an improved asset mix that will
drive more predictable production growth and strong returns,"
Chief Executive Steve Farris said in a statement.
    Chesapeake Energy Corp's new chief executive, Doug
Lawler, said the company was reviewing its partnerships and
assets as the second-largest U.S. natural gas provider tries to
simplify its structure and improve financial discipline.
    The company, which experienced a severe liquidity crunch in
2012 after spending heavily for years to acquire drilling
acreage, reported a better-than-expected quarterly profit as it
produced more crude oil than Wall Street targeted. Its shares
rose 7 percent to the highest level in more than a year.
    Among refiners, Marathon Petroleum Corp and its
peers are betting on new pipelines and higher volumes to win
back margins that have shrunk as discounts on U.S. crude
relative to the more expensive European benchmark have narrowed.
    That has erased a cost advantage that U.S. refiners had
enjoyed for nearly three years.
    The spreads could widen again as extra pipeline capacity
comes on stream to move Texas crude to the Gulf Coast. Higher
U.S. oil output will also offset crude draws from the U.S. crude
futures hub at Cushing, Oklahoma. 
    U.S. refiners are also being hurt by the rising cost of
ethanol credits, or Renewable Identification Numbers (RINs),
which they are required to purchase in order to meet blending
targets set by the U.S. Environmental Protection Agency.
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