Shell, Exxon Dodge Weak Prices for Gas

By GUY CHAZAN And ISABEL ORDÓÑEZ

Exxon Mobil Corp. and Royal Dutch Shell PLC reported big increases in third-quarter earnings, benefiting from higher oil prices and shrugging off low prices for U.S. natural gas.

But Shell said the lingering effects of the U.S. moratorium on deep-water drilling in the Gulf of Mexico could reduce the company's production. Though the ban ended this month, the government is moving slowly to assess and issue new drilling permits.

Shell said the delays could shave 40,000 barrels a day, about 1.3% of current output, from projected production next year. The Anglo-Dutch company said 2012 output also could be affected.

Exxon barely mentioned the impact of the moratorium. The largest U.S. oil company by market value reported a 55% rise in earnings as production rose 20% and refining margins improved.

The Irving, Texas, company has faced criticism for its June acquisition of natural-gas producer XTO Energy Inc. Natural-gas prices have dropped since the deal was announced, and some investors expressed concern that Exxon bet on the wrong fuel.

Exxon also spent $695 million in the third quarter to buy Colorado-based Ellora Energy Inc., which has acreage in the gas-rich Haynesville shale in Texas and Louisiana.

Oppenheimer & Co. analyst Fadel Gheit said the deal is a bet on the long-term rebound of currently depressed natural-gas prices. With XTO "they bought the tree, they might as well now put on the ornaments," he said.

Exxon's output increased to 4.5 million barrels of oil equivalent a day, mainly because of the addition of XTO. Higher output in Qatar also boosted results.

Exxon reported profit of $7.35 billion, or $1.44 a share, up from $4.73 billion, or 98 cents a share, a year earlier. Revenue rose 16% to $95.3 billion.

While Exxon and Shell have global operations, Shell is a larger producer in the gulf and more affected by the drilling freeze imposed by the White House shortly after the Deepwater Horizon rig blew up in the gulf in April. Chief Financial Officer Simon Henry said in a conference call that Shell has taken $115 million in charges this year for drilling rigs idled by the drilling moratorium.

Oil companies are scrambling to understand the effects of new rules recently announced by the government—such as increased third-party inspection of crucial equipment like blowout preventers, requirements for expanded spill clean-up plans and greater federal oversight of how wells are drilled and tested. The new regulations likely will squeeze small, independent companies, which account for around 60% of U.S. gulf production.

But comments by Shell indicate that big companies also have been hit. Mr. Henry said the moratorium had affected not only Shell's exploration program, but also its plans to drill development wells that would increase production at existing projects.

Shell posted an 88% rise in third-quarter adjusted profit, reflecting higher oil and gas prices as well as a big efficiency drive. Shell's clean current cost of supplies, a closely-watched figure that strips out gains or losses from inventories and other nonoperating items, rose to $4.93 billion from $2.62 billion a year earlier. Oil and gas production rose 5%.

Profit for the quarter rose 6.7% to $3.46 billion from $3.25 billion.