PREVIEW-Eyes on oil output as majors battle refining slump
* Oil major Q3 profits expected to drop 63 pct to 72 pct
* No help from refining, eyes largely on production
* Downturn seen as test of their management's mettle
SAN FRANCISCO, Oct 23 (Reuters) - This quarter's earnings from oil majors like Exxon Mobil Corp (XOM.N) and BP Plc (BP.L) will put the focus on their integrated structure as they bank on rebounding oil prices to offset dismal refining results.
Refineries are struggling as demand remains limp and the cost of their input - oil - keeps rising. That places the onus on the majors' exploration and production arms, leading to more scrutiny of new wells due to come on line in the months ahead.
Few anticipate a dramatic recovery in global demand for oil products next year, so oil majors also face tough decisions on what to do about surplus refining capacity, as do the dedicated refiners such as Valero Energy Corp (VLO.N). [ID:nN08530096]
After a tough year for Exxon, whose stock is down 7 percent in 2009 while the sector .OIX is up 20 percent, the Irving, Texas-based giant's outlook will be especially important.
"We want to make sure the projects in the queue are going as planned, and hopefully there will be production growth in 2010," said Neal Shah, senior energy analyst with First American Funds in Milwaukee, Wisconsin.
U.S. oil prices CLc1 above $80 a barrel for the first time in a year is welcome news to oil producers. Last quarter they averaged $68 a barrel, just over half that of a year ago, but 13 percent above the second quarter.
Mirroring the year-on-year price plunge, Exxon, the world's largest private-sector oil company, is expected to report a 63 percent drop in profit to $4.94 billion, or $1.06 a share, according to the average on Thomson Reuters I/B/E/S.
It is a similar story for BP, with a Reuters poll of six analysts giving an average net profit forecast of $3.2 billion for the quarter, down 64 percent from the same period in 2008.
Anglo-Dutch giant Royal Dutch Shell Plc (RDSa.L), based on the average among some analysts, is expected to show comparable net profit of $2.5 billion, down 69 percent from a year ago.
"It's going to differentiate if these supermajors are true supermajors," said Tina Vital at S&P Equity Research. "The down time is a good time to see what you're really dealing with, and the value of these players and their management."
A key test will come from their refining businesses, with benchmark margins off 54 percent on the U.S. Gulf Coast and down 60 percent in both Northwest Europe and Singapore.
Chevron Corp (CVX.N) said earlier this month that it saw no improvement in refining margins last quarter. [ID:nN08542448] Continued...
