With rising prices, oil companies see increase in profits

Value of industry's reserves goes up, as do share prices

August 20, 2004|By Paul Adams | Paul Adams,SUN STAFF

Not since the late 1970s have multinational, integrated oil companies, refiners and the industrial giants who supply them seen so much green.

With crude oil approaching a record $49 a barrel and expected to climb higher, much of the oil industry is enjoying a boomlet that has sent shares skyward along with bottom lines. With every dollar of price increase, the industry sees the value of its reserves go up. And it didn't have to lift a finger.

"Their balance sheets look very good because all of the reserves are valued more highly and their cash flow is also improving dramatically," said Thorsten Fischer, an oil industry expert and senior economist with Economist.com. "Even if they have the same physical amount of crude oil, it is worth more now."

Also on the winning side are the economies of oil-producing nations, such as Russia, Saudi Arabia and Venezuela, among others. And don't forget the brokers who facilitate the frenzied trading that has been roiling the oil market in recent weeks.

"The brokers profit because their volume [of trades] goes up," Fischer said.

Consumer anger

But right or wrong, it's the oil companies that tend to draw the ire of consumers who are paying premium prices at the pump.

The same was true in 1979, when Exxon's profit soared 118 percent, Mobil's 130 percent and Sohio's 191 percent. Consumers socked by high prices directed their outrage at those profiting from their misery.

This time around, the oil companies don't stand to enjoy such lavish profits. But recent months have been an unmitigated success.

`Blowout quarter'

Exxon Mobil Corp., the world's largest publicly traded oil producer, reported a 39 percent increase in its second-quarter profit last month. The company recorded its highest refining profit in 13 years. Sales soared 24 percent, to $70.7 billion, prompting the company to expend some of its largesse by stepping up its share buybacks by $1 billion a quarter.

One analyst said it was a "blowout quarter." And that was before the latest increase in crude oil prices.

Not to be outdone, the Royal Dutch/Shell Group of Cos. reported a 54 percent increase in its second-quarter profit - $4 billion, compared with $2.6 billion in the same period in 2003.

Companies that service and supply the oil industry, such as Halliburton Co., BJ Services and Baker Hughes Inc., also benefit when their multinational customers step up production to take advantage of high prices.

But industry experts say not everyone in the business is making a killing off the rise in crude prices.

"Companies that just own refineries but don't have wells ... they were making good money last spring, when gasoline was so much higher than crude, but their profits right now have been significantly reduced," said James L. Williams, an analyst with WTRG Economics.

And it doesn't pay to shout at your local gas station attendant. Industry analysts said retailers are so fiercely competitive that no one seller has enough pricing power to boost prices.

"They're just making a few cents a gallon, like they always have," Williams said.

Sun staff writer Lorraine Mirabella contributed to this article.

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