(See below for news articles outlining soaring profits from ExxonMobil,
ConocoPhillips, Shell and BP)
The failure to stop the bloodletting in the Middle East, Exxon's record
second-quarter profits and Iran's nuclear cat-and-mouse game have something
in common -- it's the oil.
I can't tell you how it started -- this is a war that's been fought since the
Levites clashed with the Philistines -- but I can tell you why the current mayhem
has not been stopped. It's the oil.
I'm not an expert on Palestine nor Lebanon and I'd rather not pretend to be
one. If you want to know what's going on, read Robert
Fisk. He lives there. He speaks Arabic. Stay away from pundits whose only
connection to the Middle East is the local falafel stand.
So why am I writing now? The answer is that, while I don't speak Arabic or
Hebrew, I am completely fluent in the language of petroleum.
What? You don't need a degree in geology to know there's no oil in Israel,
Palestine or Lebanon. (A few weeks ago, I was joking around with Afif Safieh,
the Palestinian Authority's Ambassador to the US, asking him why he was fighting
to have a piece of the only place in the Middle East without oil. Well, there's
no joking now.)
Let's begin with the facts we can agree on: the berserkers are winning. Crazies
discredited only a month ago are now in charge, guys with guns bigger than brains
and souls smaller still. Here's a list:
Israel's Prime Minister Ehud Olmert's approval rating in June was down to
a Bush-level of 35%. But today, Olmert's poll numbers among Israeli voters
have more than doubled to 78% as he does his bloody John Wayne "cleanin'
out the varmints" routine. But let's not forget: Olmert can't pee-pee
without George Bush's approval. Bush can stop Olmert tomorrow. He hasn't.
Hezbollah, a political party rejected overwhelmingly by Lebanese voters sickened
by their support of Syrian occupation, holds a mere 14 seats out of 128 in
the nation's parliament. Hezbollah was facing demands by both Lebanon's non-Shia
majority and the United Nations to lay down arms. Now, few Lebanese would
suggest taking away their rockets. But let's not forget: Without Iran, Hezbollah
is just a fundamentalist street gang. Iran's President Mahmoud Ahmadinejad
can stop Hezbollah's rockets tomorrow. He hasn't.
Hamas, just days before it kidnapped and killed Israeli soldiers, was facing
certain political defeat at the hands of the Palestinian majority ready to
accept the existence of Israel as proposed in a manifesto for peace talks
penned by influential Palestinian prisoners. Now the Hamas rocket brigade
is back in charge. But let's not forget: Hamas is broke and a joke without
the loot and authority of Saudi Arabia. King Abdullah can stop these guys
tomorrow. He hasn't.
Why not? Why haven't what we laughably call "leaders" of the USA,
Iran and Saudi Arabia called back their delinquent spawn, cut off their allowances
and grounded them for six months?
Maybe because mayhem and murder in the Middle East are very, very profitable
to the sponsors of these characters with bombs and rockets. America, Iran and
Saudi Arabia share one thing in common: they are run by oil regimes. The higher
the price of crude, the higher the profits and the happier the presidents and
princelings of these petroleum republics.
This Thursday, Exxon is expected to report the highest second-quarter earnings
of any corporation since the days of the Pharaoh, $9.9 billion in pure profit
collected in just three months -- courtesy of an oil shortage caused by pipelines
on fire in Iraq, warlord attacks in Nigeria, the lingering effects of the sabotage
of Venezuela's oil system by a 2002 strike... the list could go on.
Exxon's brobdingnagian profits simply reflect the cold axiom that oil companies
and oil states don't make their loot by finding oil but by finding trouble.
Finding oil increases supply. Increased supply means decreased price. Whereas
finding trouble -- wars, coup d'etats, hurricanes, whatever can disrupt supply
-- raises the price of oil.
A couple of examples from today's Bloomberg newswire are:
"Crude oil traded above $75 a barrel in New York as fighting between
Israeli and Iranian-backed Hezbollah forces in Lebanon entered its 14th day...
Oil prices rose last month on concern for supplies from Iran, the world's
fourth largest producer, may be disrupted in its dispute with the United Nations
over its uranium enrichment ... [And, said a trader,] 'I still think $85 is
likely this summer. I'm really surprised we haven't seen any hurricanes.'''
In Tehran, President Ahmadinejad may or may not have a plan to make a nuclear
bomb, but he sure as heck knows that hinting at it raises the price of the one
thing he certainly does have -- oil. Every time he barks, 'Mad Mahmoud' knows
that he's pumping up the price of crude. Just a $10 a barrel "blow-up-in-the-Mideast"
premium brings his regime nearly a quarter of a billion dollars each week (including
the little kick to the value of Iran's natural gas). Not a bad pay-off for making
a bit of trouble.
Saudi Arabia's rake-in from The Troubles? Assuming just a $10 a barrel boost
for Middle Eastern mayhem and you can calculate that the blood in the sand puts
an extra $658 million a week in Abdullah's hand.
And in Houston, you can hear the cash registers jing-a-ling as explosions in
Kirkuk, Beirut and the Niger River Delta sound like the sleigh-bells on Santa's
sled. At $75.05 a barrel, they don't call it "sweet" crude for nothing.
That's up 27% from a year ago. The big difference between then and now: the
rockets' red glare.
Exxon's second-quarter profits may bust records, but next quarter's should
put it to shame, as the "Lebanon premium" and Iraq's insurgency have
puffed up prices, up by an average of 11% in the last three months.
So there's not much incentive for the guys who supply the weaponry to tell
their wards to put away their murderous toys. This war's just too darn profitable.
We are trained to think of Middle Eastern conflicts as just modern flare-ups
of ancient tribal animosities. But to uncover why the flames won't die, the
usual rule applies: follow the money.
Am I saying that Tehran, Riyadh and Houston oil chieftains conspired to ignite
a war to boost their petroleum profits? I can't imagine it. But I do wonder
if Bush would let Olmert have an extra week of bombings, or if the potentates
of the Persian Gulf would allow Hamas and Hezbollah to continue their deadly
fireworks if it caused the price of crude to crash. You know and I know that
if this war took a bite out of Exxon or the House of Saud, a ceasefire would
be imposed quicker than you can say, "Let's drill in the Arctic."
Eventually, there will be another ceasefire. But Exxon shareholders need not
worry. Global warming has heated the seas sufficiently to make certain that
they can look forward to a hellacious -- and profitable -- season of hurricanes
ExxonMobil makes $10.4B in second quarter; oil prices
pump up Shell, too
ExxonMobil (XOM), the world's largest public oil company, said Thursday that
quarterly profit surged 36%, pushed up by another quarter of sharply higher
Net income in the second quarter was $10.36 billion, or $1.72 a share, compared
to $7.64 billion, or $1.20 a share, in the year earlier quarter. It was the
second largest quarterly profit ever recorded by a publicly traded U.S. company.
Analysts on average expected a profit of $1.64 a share, according to Reuters
The results topped Wall Street expectations but came in behind ExxonMobil's
record profit of $10.71 billion set in the fourth quarter of 2005.
"It's a $10 billion quarter. How can you argue with that?" said Lysle
Brinker, analyst with energy research firm John S. Herold. "It's pretty
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Revenue rose to $99.03 billion from $88.57 billion in the prior-year quarter.
That was short of ExxonMobil's record third-quarter revenue of $100.72 billion
— which also stands as record revenue generated by any U.S. public company
ever in a single quarter.
ExxonMobil's report comes as many drivers in the U.S. are paying $3 for a gallon
of gas — increasing the likelihood of further political backlash in Washington.
But the company isn't alone. Royal Dutch Shell (RDSA/RDSB) said Thursday that
second-quarter earnings jumped 40% to $7.32 billion as high oil prices offset
production difficulties in Nigeria and the Gulf of Mexico.
Other oil companies reported big numbers for the quarter this week as well.
BP (BP) reported its quarterly profit rose 30% to $7.3 billion and ConocoPhillips
(COP) said its earnings rose 65% to $5.18 billion.
Chevron (CVX) will round out the field of five majors when it reports its second-quarter
These five were expected to earn an estimated $33.6 billion, or a 32% boost,
according to analysts surveyed by Thomson Financial. Already the first four
have reported earning $30.16 billion.
ExxonMobil said it spent $4.9 billion on capital and exploration projects during
the quarter, up 8% from a year ago, while distributing $7.9 billion to shareholders
in the form of dividends and share repurchases. Congress has been urging the
big oil companies to put more of their profits toward boosting the supply of
energy for consumers.
In a surprise move, the company boosted its capital spending program forecast
to $20 billion this year, citing additional exploration and production opportunities.
It also said it would ramp up its already hefty stock buyback program to $7
billion in the third quarter.
The company made more in all parts of its business.
By segment, exploration and production earnings rose sharply to $7.13 billion,
up $2.23 billion, a reflection of higher crude and natural gas prices. Production
increased 6% and 9% if the impact of divestments and entitlements are excluded.
The company's refining and marketing segment reported a $264 million earnings
increase to $2.48 billion, the result of stronger refining margins, slightly
offset by weaker marketing margins.
Exxon's chemical business saw earnings rise $26 million to $840 million.
The company said its average sale price for crude oil in the U.S. during the
quarter was $63.84 a barrel, compared to $45.85. Internationally, however, Exxon
said the average sale price for oil was $65.12 compared to $47.55.
Exxon also sold natural gas in the U.S. for $6.39 per 1,000 cubic feet, compared
to $6.45. Non-U.S. sales for natural gas however, rose to $6.67 per 1,000 cubic
feet from $5.25.
ConocoPhillips again posts a record profit
CEO says energy company could have done better
Lynn J. Cook
ConocoPhillips, Houston's largest company ranked by revenue, announced yet
another record profit on Wednesday.
For the second quarter of the year, the company booked net income of $5.2 billion,
or $3.09 a share, on revenue of $47.1 billion.
That's a 65 percent increase in profit over this time last year when ConocoPhillips
booked net income of $3.1 billion, or $2.21 a share, on revenue of $41.8 billion.
Even with the spike in profit, ConocoPhillips CEO James Mulva said the company
could have done better. Still, it outperformed Wall Street analysts' expectations,
and its stock closed up $1.15 at $68.60 per share.
On both the refining side and the oil and gas production side of the business,
the company's earnings were hampered slightly by downtime at facilities.
"We delivered strong results in the second quarter and are pleased with
the progress made integrating the Burlington Resources operations with ConocoPhillips,"
Mulva said, speaking of the $36 billion acquisition of Houston-based Burlington
announced last December.
"However, we experienced unplanned downtime in both our upstream and downstream
businesses, which impacted our operating performance," he said.
Output from Prudhoe Bay in Alaska was off by 20,000 barrels of oil a day, and
several thousand more barrels a day were not realized in the North Sea because
of repairs that had to be made, Mulva said.
Also, parts of the Trainer refinery in Pennsylvania were down for planned maintenance,
and the Lake Charles, La., refinery wasn't running at full capacity because
of unplanned maintenance projects, Mulva said.
Tight refining capacity
ConocoPhillips' earnings — like those of most of the other major oil companies
— were boosted by high crude oil prices and the tight demand for refining
capacity, which allows them to charge more to process crude into transportation
fuels such as gasoline and diesel.
But ConocoPhillips also benefited from its acquisition of Burlington Resources,
which has been folded into the company. Burlington brought mostly North American
natural gas assets to the table.
ConocoPhillips saw a 30 percent bounce in profitability on the exploration
and production side of its business and an even bigger 54 percent jump in profitability
on the refining and marketing side.
Mulva was quick to point out the company is reinvesting much of the money it
is making into new ventures, including large-scale refineries in Saudi Arabia
and United Arab Emirates, a major gas pipeline in the Arctic and liquefied natural
gas projects around the world.
"During the past three years, we have invested more capital into energy
development than we have earned in net income," he said. "Our 2006
$18 billion capital program represents a 50 percent increase from last year,
and it is three times what we spent just three years ago."
Returns from Lukoil
ConocoPhillips is also seeing significant returns from its 18 percent investment
in Russia's Lukoil. Net income from those operations popped 55 percent to $387
million for the quarter.
Lanny Pendill, an energy analyst with Edward Jones, said ConocoPhillips, which
has always been in a league of its own, is growing to look more like the so-called
supermajor energy companies as they branch out into more geographic areas but
with one big difference — total devotion to fossil fuels.
"Look at BP. They're doing solar panels and hydrogen fuels, and Conoco
really isn't doing that stuff. They're not in as many places as the bigger players
and they're not doing as many things," he said. "But if you look at
where they're investing, like the refinery pro- jects in Saudi Arabia and United
Arab Emirates, they're really positioning themselves now for what's to come
down the road. They're getting there."
When asked about political instability in the world and how it could affect
ConocoPhillips, Mulva said, "there's political risk everywhere in the world."
The company's emphasis is still squarely on North American and North Sea oil
and gas resources, with significant assets in countries outside the Middle East,
including Australia. Mulva said because almost 70 percent of current oil and
gas production comes from those stable regions, ConocoPhillips can stomach some
"As we branch out and go to other places we are, competitively, rather
unique. You can see from where we're investing — in Russia, Kazakhstan,
Qatar, Abu Dhabi. We certainly wouldn't be making these investments if we thought
the political risk was unacceptable," he said.
Exxon Mobil is slated to release its earnings today.
Shell 2Q profit up 40 pct. on oil prices
A man waits at an intersection across the street from the gasoline price board at the Shell gas station in San Mateo, Calif., in this Oct. 11, 2004 file photo. Royal Dutch Shell reported a 40 percent rise in second-quarter earnings on Thurs., July 27, 2006. (AP Photo/Jeff Chiu, File)
Royal Dutch Shell PLC, Europe's second-largest oil company, said Thursday its
second-quarter earnings jumped 40 percent as high oil prices offset production
difficulties in Nigeria and the Gulf of Mexico.
Net profit rose to $7.32 billion from $5.24 billion a year earlier. Sales rose
less than 1 percent to $83.1 billion from $82.6 billion.
Chief Executive Jeroen van der Veer said in a statement the earnings were "underpinned
by overall good operational performance and not simply high energy prices."
Still, the main reason for the increase was higher oil prices, with earnings
at Shell's oil exploration and production arm leaping to $4 billion from $2.75
billion, despite an 8 percent drop in production to 3.25 million barrels a day.
Prices for benchmark North Sea Brent crude averaged $69.51 a barrel in the
quarter, compared with $51.65 a barrel a year earlier.
That was in line with other major oil companies reporting results this week.
BP PLC said its second-quarter profit rose 30 percent to $7.3 billion, while
ConocoPhillips reported a 65 percent increase to $5.18 billion. Exxon Mobil
Corp., the world's largest publicly traded oil company, is due to report its
earnings later Thursday.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said it was
"good news" that Shell had beaten forecasts, in contrast to BP.
"But going forward, high oil prices will not continue to mask" if
Shell's management makes mistakes, he said.
Shell said that excluding the damage caused by militant attacks on its operations
in Nigeria and the fallout from hurricanes Katrina and Rita in the Gulf of Mexico,
production would have been flat.
Shell is missing around 180,000 barrels per day in Nigeria because of recent
attacks, and said Thursday it couldn't confidently predict when production will
Van der Veer said that despite a pipeline rupture this week, possibly due to
an attack by militants, the company has no intention of scaling back operations
in the West African nation. "We are not afraid to invest in Nigeria,"
The Niger Delta region has been the scene of frequent disputes for years between
oil companies and communities that demand a greater share of the wealth of Africa's
largest crude producer. At least 31 expatriate workers have been held hostage
by a variety of militant groups so far this year.
Shell's results Thursday beat earnings estimates compiled by Dow Jones, which
had predicted a 17 percent rise in earnings, helped by strong refining margins.
Shares rose 2.5 percent to 28.05 euros ($35.43) in Amsterdam trading.
At Shell's second-biggest division, which refines oil and sells it to consumers
at the pump, profits increased 13 percent to $3.02 billion.
"Higher earnings due to stronger refining margins particularly in the
United States, and increased trading profits from a positive trading environment
were partially offset by the impact of lower retail marketing margins and reduced
refinery utilization mainly in Europe," Shell said.
Shell's 2004-2005 accounting scandal, in which it was forced to repeatedly
reduce the size of its proven oil reserves, continued to affect the company's
earnings and prospects.
The company said Thursday it had reserved $500 million in the second quarter
to pay shareholder class action lawsuits.
Shell has also been spending heavily to restore reserves, planning investments
of $19 billion in 2006, and $21 billion in 2007, most of it in exploration and
But in 2005, the company pumped more oil than it added to proven reserves,
and in Shell's 2005 annual report those reserves stood at around 11.5 billion
With Thursday's earnings, Shell said it has added "at least" 48 billion
barrels of oil to unproven reserves via acquisitions in Canada in the first
half of 2006, at a combined cost of some $2.6 billion.
In a conference call, Chief Financial Officer Peter Voser repeated that the
company has a "fair prospect" to replace as much as it pumps between
2004-2008 as a whole.
"But we will not be shy to delay projects or even cancel projects because
of the economic situation, cost inflation, and delay the recognition of proved
reserves if that is the best economic outcome" for the company, he said.
While production in 2006 has been below analysts' expectations, he repeated
that Shell's production is expected to rise to 3.5 million to 3.7 million barrels
per day in 2007.
BP Profit Rises to a Record on Oil Prices, Refining
BP Plc, Europe's biggest oil company, reported a 30 percent jump in second-quarter
profit to a record as crude prices surged and refining earnings increased.
Net income rose to $7.27 billion, or 35.6 cents a share, from $5.6 billion,
or 25.9 cents, a year earlier, the London-based company said today in a statement.
Revenue climbed 24 percent to $72.4 billion.
Chief Executive Officer John Browne today said he will boost 2006 capital spending
by as much as $1 billion to $16 billion to raise production and gain ground
on bigger rival Exxon Mobil Corp., which plans to spend $20 billion. His target
to increase output 4 percent a year is being tested by a yearlong delay in the
start of the Thunder Horse platform in the Gulf of Mexico.
BP is ``struggling to capture the benefits of the stronger oil price background,''
said Ivor Pether, who helps manage about $12 billion at Royal London Asset Management,
including BP shares. The shares are ``dull'' today partly because the profit
gains ``are not down to exceptionally good performance'' from the company's
Shares of BP slipped 0.1 percent to 633 pence as of 3:32 p.m. in London, valuing
the company at 125.9 billion pounds ($232 billion). BP said the start of its
$1 billion Thunder Horse platform would be delayed until next year. It was initially
forecast to start late 2005.
BP shares have added 2.3 percent this year, less than a 17 percent increase
by Exxon Mobil and a 4.5 percent gain in Royal Dutch Shell Plc's stock.
Second-quarter oil and gas output fell 2.3 percent from a year earlier, the
fourth consecutive decline in production, BP said today.
BP's 17.6 billion barrels of oil and gas reserves are valued at $13.21 each,
according to data compiled by Bloomberg. That's less than for Exxon Mobil, whose
21.6 billion barrels are valued on the stock exchange at $18.27 each.
Browne, 58, said he plans to retire when he reaches 60 in 2008 and hand over
to one of several candidates.
``There are more than three,'' he said in an interview today in London.
Chairman Peter Sutherland asked Browne to make clear he will retire in 18 months,
the Financial Times said today, citing an unidentified person close to the board.
Browne is ``very upset'' and is resisting Sutherland's demand, the newspaper
Browne today denied there was a falling out with the chairman. ``There is no
rift,'' Browne said.
Browne oversaw BP's acquisition of Amoco Corp. in 1999 and Atlantic Richfield
Co. in 2000. He established a Russian joint venture, OAO TNK-BP, in 2003, allowing
BP to surpass Shell in production and market value.
Sutherland, who's also chairman of Goldman Sachs Group Inc.'s international
unit, will help ensure a smooth succession, said Michael O'Sullivan, an equity
strategist at State Street Global Markets.
``Under normal circumstances if John Browne wasn't balanced by a very, very
strong chairman, someone like that who's been very, very successful could have
a stronger hold on the company and there could be potential corporate governance
issues,'' O'Sullivan said.
It would be an ``awful shame'' to lose Browne, said Neil McMahon, an analyst
at Sanford C. Bernstein in London, who rates BP stock ``market perform.''
Exploration & Production
``Even if asked, I wouldn't stay on'' beyond 2008, Browne said today in a meeting
with reporters in London. Browne said he won't join the company's board, or
take an advisory role.
BP's exploration and production unit increased profit 32 percent to $7.8 billion
from $5.9 billion a year earlier, the company said in today's statement. Refining
and marketing profit jumped 46 percent to $1.86 billion from $1.27 billion.
The company's 2006 capital expenditure would rise partly because of ``sector
specific inflation,'' he said.
Profit before one-time items and changes in the value of oil inventory was
$6.11 billion, more than the $5.97 billion median estimate in a survey of 11
analysts by Bloomberg.
The company boosted exploration and production profit by a third in the second-quarter
as operating earnings from its Russian venture climbed 18 percent.
Oil prices in New York surged 33 percent from a year earlier to average $70.66
a barrel in the second quarter.
Hurricanes on the U.S. Gulf Coast last year idled as much as 29 percent of
the nation's refining capacity, pushing fuel prices to records. BP's Texas City
refinery, damaged last year by hurricanes and an explosion that killed 15, cost
it $650 million in lost profits in the first quarter.
BP's $1 billion investment in the initial public offering of OAO Rosneft may
enhance the relationship between Europe's largest oil company and Russia, Browne
Profit at the six biggest publicly traded oil companies by sales probably jumped
23 percent to $36 billion in the quarter, based on JPMorgan Chase & Co.
estimates. That's more than Venezuela's gross domestic product in the same period.
Companies benefited from near-record prices, bolstered by the standoff over
Iran's nuclear program and cuts to Nigerian supplies.
Shell, the second-biggest European oil company, will probably say July 27 that
it earned $6.2 billion, a 19 percent jump from $5.2 billion a year earlier,
a survey of 10 analysts found. Shell, based in The Hague, declined to comment.
Irving, Texas-based Exxon Mobil, the largest publicly traded oil company, is
expected to say on the same day that second- quarter profit climbed 30 percent
from a year earlier, to $9.92 billion, according to the average estimate from
21 analysts surveyed by Thomson Financial.
Browne, who has said oil will fall to $40 a barrel, said in February he would
return $65 billion to investors over three years should crude stay above $60
Of the 30 analysts that have rated BP in the past three months, 20 recommend
investors ``buy'' the shares. Seven say ``hold'' and three ``sell,'' according
to data compiled by Bloomberg.
BP raised its dividend to 9.825 cents a share compared with 8.925 cents a year
To contact the reporters on this story:
Mathew Carr in London at firstname.lastname@example.org;
Stephen Voss in London at email@example.com