Exxon Profit Jump a Sign of Strengthening Oil Companies -3rd Update

The world's biggest oil companies are seeing their highest quarterly profits in more than a year.

Exxon Mobil Corp. on Friday reported its best quarter since 2015, notching a $4 billion profit. It was more than double what it posted in the first quarter a year ago, when crude prices fell to the lowest level since 2003.

Chevron Corp., which reported a loss last year, on Friday posted a profit of $2.7 billion. The rosy results came a day after French energy company Total SA reported a 77% rise.

Shares of Exxon, down 10% so far this year, climbed 1.5% premarket to $82.44. Chevron shares rose 2.5%.

The improvements reflect a partial recovery from low oil prices after a plunge in 2014, but the optimism is tempered by growing concerns over whether a frenzied return to U.S. drilling will once again swamp markets.

Royal Dutch Shell Plc and BP Plc, which will report early next month, are also expected to show sharp increases. The improved performance stems from both higher prices and revenue from new projects that have come online after years of multi-billion investments in far-flung places.

"These companies are cutting their cost structures, said Brian Youngberg, an energy analyst at Edward Jones. "They are leaner and have managed to get more out of each dollar they spend, and it is showing in their results."

As oil prices recovered in the last year to prices above $50 a barrel, U.S. oil companies returned to shale fields at a breakneck pace. The number of rigs operating has more than doubled from a year ago, according to RigData. U.S. production has risen to about 9.3 million barrels a day, just 3% shy of the 2015 peak.

The increase has been driven in part by lower costs that have improved drilling prospects in a number of fields, as well as positive sentiment stemming from a production cut from the Organization of the Petroleum Exporting Countries.

Still, some investors and market analysts are concerned that the pace of the U.S. return to drilling has been too hot, raising the prospect that new shale production could bring so much new supply that prices will remain mired around $50 a barrel for years.

While the companies have managed to generate enough cash at that price to pay for new investment and dividends, executives have acknowledged that it will be difficult for them to grow significantly unless oil prices rise further.

Exxon lost money for the ninth straight quarter in its U.S. drilling business, losing $18 million, an improvement from a loss of more than $800 million a year ago. Still, the continued struggles to turn a profit in that business has troubled some investors, given that Exxon and Chevron have made shale operations a major focus for future growth and profitability.

Both companies have unveiled dramatic growth plans for the Permian basin in West Texas and New Mexico. Chevron said its U.S. production operations earned $80 million in the quarter.

Earnings growth for oil-and-gas companies could hit double digits in the first quarter of 2017, said Joseph Tanious, senior investment strategist for Bessemer Trust. "When oil prices were dipping lower, that was having a drag on the overall results for the S&P 500," he said. "Now we're seeing the opposite of that."

Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

April 28, 2017 09:40 ET (13:40 GMT)