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Exxon, Conoco see a quarterly payoff from natural gas

A view of the Exxon Mobil refinery in Baytown, Texas September 15, 2008. REUTERS/Jessica Rinaldi
A view of the Exxon Mobil refinery in Baytown, Texas September 15, 2008. REUTERS/Jessica Rinaldi

By Anna Driver and Ernest Scheyder

HOUSTON/NEW YORK (Reuters) - U.S. oil companies Exxon Mobil Corp and ConocoPhillips both reported first-quarter earnings that exceeded Wall Street expectations on Thursday, helped partly by higher natural gas prices.

A brutal winter in North American sapped supplies of natural gas and boosted prices at key delivery point Henry Hub by more than 50 percent in the quarter, propping up profit at both companies, analysts said.

Both Conoco and Exxon have increased investment in North American shale fields that produce crude oil and natural gas liquids. On Wednesday, Royal Dutch Shell reported better-than-expected quarterly results that were also boosted by gas earnings.

Jeff Sheets, chief financial officer of Conoco, said the company was unlikely to see a similar benefit from natural gas prices in the current quarter because markets had returned to a more normal state.

"It was a very unusual quarter because of weather. What you saw in our results is that we had the ability to supply some of the markets where prices were higher than supply based on Henry Hub," Sheets said.

Conoco also said it plans to ship the first of six cargoes of liquefied natural gas (LNG) from its Kenai plant in Alaska this month since renewing its export license in April.

The companies appear to have had better luck in U.S. shale plays than BP PLC, which on Tuesday reported a 24 percent drop in quarterly profit and wrote off $521 million as it scrapped a shale project in the Utica basin.

Exxon remains the largest U.S. producer of natural gas and spent $30 billion in 2010 to acquire gas producer XTO Energy.

Since the XTO deal closed, horizontal drilling and hydraulic fracturing in shale unlocked vast supplies of natural gas that had depressed prices until this winter.

"I think that (Exxon's) finally beginning to derive some benefit from the XTO acquisition even though volumes were lower," Brian Youngberg, analyst at Edward Jones said, adding that Conoco also reaped the benefit of higher commodity prices.

Shares of Exxon Mobil fell 96 cents, or 0.9 percent, to $101.45 in afternoon trading, while Conoco's stock was up 70 cents at $75.01, or nearly 1 percent.

The past winter, which affected much of the country in January and February, lifted Exxon Mobil's average U.S. natural gas sale price by 49 percent, helping offset a dip in global production.

Prices for natural gas rose around the world as well, even as the price that the Irving, Texas company receives for its crude oil slipped both in the U.S. and internationally.

Exxon Mobil reported first-quarter net income of $9.10 billion, or $2.10 per share, compared with $9.50 billion, or $2.12 per share, in the year-ago quarter.

The results surpassed analysts' expectation for profit of $1.88 per share, according to Thomson Reuters I/B/E/S.

Total production fell about 6 percent to 4.2 million barrels of oil equivalent per day (boepd).

Conoco's first-quarter profit was flat at $2.1 billion, or $1.17 per share. Excluding items, the Houston company earned $1.81 a share, beating analysts' estimates for $1.56 per share, according to Thomson Reuters I/B/E/S.

Conoco's oil and gas output from continuing operations excluding Libya edged up to 1.53 million boepd in the three months through March 31 from a year earlier, in line with analysts' expectations.

(Editing by Terry Wade, Bernadette Baum and Marguerita Choy)

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