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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

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ExxonMobil makes $10.4B in second quarter; oil prices pump up Shell, too

USA Today

ExxonMobil (XOM), the world's largest public oil company, said Thursday that quarterly profit surged 36%, pushed up by another quarter of sharply higher oil prices.

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 Estimates.

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 amazing."

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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 performance Friday.

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.

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ConocoPhillips again posts a record profit

CEO says energy company could have done better

Lynn J. Cook
The Houston Chronicle

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."

Political instability

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 risk elsewhere.

"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.

ljcook@chron.com

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Shell 2Q profit up 40 pct. on oil prices

Toby Sterling
Associated Press

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 resume.

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," he said.

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 production.

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 barrels.

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.

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BP Profit Rises to a Record on Oil Prices, Refining

Bloomberg.com

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 units.

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.

Output Decline

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 said.

`No Rift'

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.

Texas City

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 said today.

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.

Exxon Mobil

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 a barrel.

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 ago.

To contact the reporters on this story:
Mathew Carr in London at m.carr@bloomberg.net;
Stephen Voss in London at sev@bloomberg.net