By Alexis Flynn TAKING THE PULSE: Weaker crude prices and slack consumer demand should translate into lower second-quarter earnings for two of the U.K.'s three major oil and gas companies. Divestments and oil field shutdowns are likely to put a further drag on profits, analysts said. However, unlike larger peers Royal Dutch Shell and BP, fast-growing BG Group should buck the trend. Most sector analysts have already cut their expectations to reflect Brent crude prices, which were 7% lower year-on-year in the second quarter. Attention will now turn to how companies are managing the costs of their major projects in this more challenging price environment. Royal Dutch Shell remains the safe bet for many analysts, with its giant projects in Qatar and Canada continuing to provide the kind of stable, profitable output many of its peers envy. Like Shell, BG Group has a significant liquefied natural gas business, which somewhat insulates both firms from fluctuating oil prices. In contrast, BP's fortunes are more closely linked to the price of crude. COMPANIES TO WATCH: BP PLC (BP) (July 31 at 0600 GMT) MARKET EXPECTATIONS: Analysts expect BP's adjusted profit to be significantly lower year-on-year, citing a heavy maintenance schedule that crimped output from key oil fields in the Gulf of Mexico and the North Sea. Despite lackluster expectations, many analysts still see BP in a transitional phase and will instead focus their attention on signs of future recovery. For example, evidence that BP is generating more cash, as the massive liabilities from the 2010 Deepwater Horizon disaster recede, will be worth paying attention to, RBC Capital analyst Peter Hutton said. Refining and marketing earnings are likely to hold up a bit better, due to a lack of significant outages. MAIN FOCUS: Investors are still keenly awaiting news of a possible settlement of BP's Gulf of Mexico oil spill liabilities, which are likely to be in the billions of dollars. Many BP-watchers are broadly resigned to the idea that the company will stay in an operational holding pattern until it gets final clarity on this cost. Attention will instead turn to the firm's Russian strategy and plans to sell its stake in TNK-BP. BP and its Russian partners entered formal talks over the sale Wednesday, but it is unclear if other potential buyers are still interested. Royal Dutch Shell PLC (RDSB.LN) (July 26 at 0600 GMT) MARKET EXPECTATIONS: Shell is unlikely to escape the effects of lower quarterly crude prices and analysts expect the company to post marginally lower adjusted profit, compared to the second quarter of 2011. However, healthy margins will be locked in to Shell's long-term LNG contracts and the continuing ramp-up of its high-value Pearl gas-to-liquids plant in Qatar will also help, said Credit Suisse. Overall oil and gas production is expected to be higher year-on-year. In its refining and marketing division, weaker crude prices are expected to help improve margins and profitability. MAIN FOCUS: Analysts broadly agree that while Shell has done a good job delivering the kind of big-ticket projects needed to turn around declining production. However, they are starting to ask questions about the costs, and risks, of delivering the next phase of growth. Any revisions to previous cost estimates, particularly in its Australian LNG developments, will be keenly watched. There may also be questions about Shell's strategy for East Africa, after the company abandoned its takeover bid for Mozambique-focused Cove Energy this week. BG Group PLC (BG.LN) (July 26 at 0600 GMT) MARKET EXPECTATIONS: Unlike its larger peers, profits at the U.K.'s third-largest energy company are expected to rise, thanks to its superior production growth. JPMorgan Cazenove analyst Fred Lucas said BG is still on track to post a 4% increase in quarterly hydrocarbon output, despite a major outage at Total SA's (TOT) Elgin-Franklin field, where BG is a partner. It is as yet unclear whether BG's gas hedging strategy will shield profits at its key LNG division from fluctuations in the relationship between U.S. benchmark gas prices and international Brent crude prices. These two markers can have profound effects on how much money BG can make from LNG sales into different regions. Analysts estimate LNG earnings to be in line, or marginally higher, than a year ago. MAIN FOCUS: Progress at BG's ripest oil-producing assets, offshore Brazil, will absorb much investor interest. Petroleo Brasileiro SA (PBR), BG's operating partner in Brazil, recently slashed its own production targets, decrying them as unrealistic and over-ambitious. Clarification on how this affects BG's production outlook for 2012 will be sought. Analysts will also be looking for detail on how BG is pushing back against creeping cost inflation in its Australian LNG project. Write to Alexis Flynn at alexis.flynn@dowjones.com Order free Annual Report for Petróleo Brasileiro SA Visit http://djnweurope.ar.wilink.com/?ticker=BRPETRACNPR6 or call +44 (0)208 391 6028 Order free Annual Report for Total SA Visit http://djnweurope.ar.wilink.com/?ticker=FR0000120271 or call +44 (0)208 391 6028 Order free Annual Report for BG Group Plc Visit http://djnweurope.ar.wilink.com/?ticker=GB0008762899 or call +44 (0)208 391 6028 Order free Annual Report for Royal Dutch Shell Plc Visit http://djnweurope.ar.wilink.com/?ticker=GB00B03MLX29 or call +44 (0)208 391 6028 Order free Annual Report for BP plc Visit http://djnweurope.ar.wilink.com/?ticker=US0556221044 or call +44 (0)208 391 6028 Order free Annual Report for Total SA Visit http://djnweurope.ar.wilink.com/?ticker=US89151E1091 or call +44 (0)208 391 6028 Subscribe to WSJ: http://online.wsj.com?mod=djnwires
