April 26, 2012 / 3:40 PM / 5 years ago

WRAPUP 2-Production growth lifts Shell; Exxon falls short

5 Min Read

* Exxon Q1 EPS $2.00 vs $2.09 expected

* Shell Q1 profit up 11 pct

* Exxon shares down 1.2 pct, Shell up 3.2 pct

By Braden Reddall

April 26 (Reuters) - First-quarter earnings from the top two publicly traded oil companies showed clearly both the challenges and potential gains of growing output even a little, with Exxon Mobil Corp's production declining and Royal Dutch Shell Plc easily beating estimates.

Exxon's oil and natural gas production slumped 5 percent, leading to a lower net profit and pushing its shares down 1.4 percent on Thursday -- an especially big move for a $400 billion company that just increased its dividend the previous day by a better-than-expected 21 percent.

Shell, on the other hand, beat forecasts with an 11 percent rise in quarterly profit, as higher oil prices and a ramp-up of new projects outweighed the impact of lower U.S. natural gas prices.

"Shell remains a favorite stock among the super majors," said analysts at Simmons & Co after the "impressive" results.

Shell Chief Executive Peter Voser said cheap U.S. gas would continue to eat into profits. "In downstream and North American natural gas we see continued challenges for our industry," he said.

The North American shale gas glut is a particularly tough challenge for its big Texas-based rival, Exxon, which increased its exposure greatly through its XTO purchase two years ago. U.S. gas now accounts for 14 percent of Exxon's global production of 4.55 million barrels of oil equivalent per day (bpd).

By comparison, the share of U.S. natural gas production for Shell in 2011 was about 5 percent.

An Exxon spokesman told analysts on Thursday it was shifting rigs to oil-rich U.S. basins such as the Bakken, Permian, Utica and Ardmore, and now had only 61 rigs working in U.S. shale regions, down from more than 70 in 2011.

Yet Exxon's first-quarter drop in production was largely due to declines outside the United States. The drop in output reduced profits by $850 million, offset by higher global oil and gas prices that added about $980 million in profits.

Exxon shares fell 1.2 percent to $85.80 on its disappointing production and financial results.

For Breakingviews on Exxon dividend increase

Exxon had warned in March that oil and gas output would be down about 3 percent this year from 2011, as it works to get several large projects on line that will increase production by 1 percent to 2 percent on average each year through 2016.

Smaller rival Chevron Corp, which posts results on Friday, is facing a similar production outlook ahead of the start-up of its huge Australian natural gas projects and Gulf of Mexico oil developments in the next three-to-five years.

Exxon's net profit slipped to $9.5 billion, or $2.00 per share, from $10.65 billion, or $2.14 per share, in the year-ago quarter. Analysts had forecast earnings of $2.09 per share, according to Thomson Reuters I/B/E/S.

Shell, Europe's largest oil company by market capitalization, said its current cost of supply net income - an industry measure of profit - rose 11 percent to $7.66 billion.

Citigroup analysts said market forecasts for Shell's future earnings would likely rise on the back of the results, and its London-listed shares rose 3.2 percent, against a 1.8 percent rise in a European oil and gas sector index.

"We believe the stock deserves trading at a premium to its peer group," said analysts at Societe Generale, "given its healthy organic production and cash flow growth, and strong upstream asset longevity."

Shell's production was up 1.4 percent in the first quarter compared to the same period a year earlier at 3.55 million bpd, as production at new facilities such as Pearl in Qatar, which converts natural gas into liquid motor fuels.

Brent crude prices averaged more than $118 per barrel last quarter, up from $105 a year before. U.S. natural gas prices have fallen to near 10-year lows after a sharp rise of shale gas production sent supplies to near all time highs.

ConocoPhillips, the third-largest U.S. oil company, posted a 1 percent drop in underlying earnings last week, due in part to weak U.S. natural gas prices.

Conoco is splitting from its refining arm, in a move that will make it more similar to U.S. No. 4 Occidental Petroleum Corp, which reported production growth and profits in line with expectations on Thursday.

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