By Daniel Gilbert And Sarah Kent
Three years ago to the day, ConocoPhillips cut loose its
refining and chemicals businesses to focus on the more profitable
work of pumping oil and gas. Now the spinoff, Phillips 66, is the
one throwing off higher profits.
Refining is proving to be a rare bright spot in the energy
industry, which has been struggling with oil prices that are 40%
lower than they were a year ago.
The plunge in oil prices erased billions of dollars in profits
for the companies that produce crude, battering Exxon Mobil Corp.,
Royal Dutch Shell PLC and Conoco, which all reported first-quarter
earnings Thursday.
But refiners have benefited from the lower cost of the oil they
turn into gasoline, diesel and jet fuel. American refiners in
particular have prospered because U.S. crude has remained far
cheaper than the global price, giving them a competitive advantage
over European and Middle East rivals.
Conoco's quarterly profit plummeted 87% from a year ago, to $272
million, or 22 cents a share. Phillips 66 earned more than three
times as much, reporting $987 million in profit, or $1.79 a share.
Its earnings were down 37% from a year earlier, however, in part
because of weakness in its chemicals business. Stripping out
one-time impacts such as asset sales, they were down a modest
3.7%.
Exxon and Shell, which have retained their refining businesses,
received boosts from them even as oil-production earnings
collapsed.
Shell's first-quarter profit actually rose 7%, to $4.76 billion,
as a result of depressed earnings a year ago; excluding a $2.86
billion impairment in 2014, profit was down 56%. Shell's refining
division posted a $2.5 billion profit in the quarter, swinging from
a loss of more than $1 billion a year ago.
Exxon, the biggest publicly traded Western oil company, booked
$4.9 billion in profit, 46% lower than a year earlier, as its
earnings from pumping oil and gas sank to the lowest level since
2003. Refining profits doubled to $1.67 billion.
In the first three months of 2015, Exxon's refining and
chemicals units together made up 48% of the company's profit,
excluding corporate and financing costs. A year ago, the two
sectors contributed just 19% of profits, with oil-and-gas
production providing the rest.
"These solid financial results demonstrate the value of our
integrated businesses in a lower commodity price environment," Jeff
Woodbury, Exxon's head of investor relations, said Thursday.
The company's financial strength, he noted, allows it to examine
potential deals that could include "larger acquisitions that
fundamentally will provide strategic value for us in the long
term."
Exxon's refining and chemical holdings stretch across North
America, Europe and Asia, but they receive a relatively small
measure of the company's cash. Over the past decade, the company
has invested about $261 billion in finding and tapping oil and gas,
about five times as much as it has spent on refining and chemical
operations combined.
BP PLC, which reported earnings Tuesday, said its refining and
oil-trading business brought in $2.1 billion in the first quarter,
up from $794 million a year earlier. France's Total SA also said
Tuesday that its quarterly income from its refining and chemicals
business more than tripled from last year.
The results come after European companies spent the past few
years struggling to sell refining assets, which had strained to
turn a profit amid a regional glut of their products, shrinking
demand and growing competition from newer and more sophisticated
plants in the Middle East and Asia.
Few expect this pattern to last. Earlier this month Total CEO
Patrick Pouyanné said the refining industry remains in a crisis.
The company is expecting refining margins to fall back in the
future.
U.S. refiners also generally reported higher profits Thursday,
despite a nationwide refinery strike that affected several plants
and severe winter weather on the East Coast. Marathon Petroleum
Corp.'s earnings surged to $891 million from $199 million a year
ago. PBF Energy Inc. reported profits of $87.3 million, up from
$77.4 million last year.
Phillips 66 shares are up more than 130% from three years ago,
when it was spun off from Conoco. Conoco's shares have risen about
24% over that time.
Conoco on Thursday said it boosted production and made progress
in its goal of cutting operating costs by $1 billion. Despite
"strong production growth and good cost control," Chief Financial
Officer Jeff Sheets said, "weak commodity prices overshadowed
strong operational performance."
Alison Sider contributed to this article.
Write to Daniel Gilbert at daniel.gilbert@wsj.com and Sarah Kent
at sarah.kent@wsj.com
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