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DALLAS -- Although hurricanes Katrina and Rita created compounding headaches for energy companies over the summer, the storms may have ultimately benefited them because, as supplies tightened, prices for gasoline, diesel and jet fuel soared. Exactly how much money was made will become clearer next week, when the industry begins to detail its third-quarter performance, though analysts are expecting huge profits, reported the Associated Press.
"They are just printing money right now," oil analyst Fadel Gheit at Oppenheimer & Co. in New York told the AP. "They are making so many trips to the bank because they can't take all the money there at one time."
Exxon Mobil Corp., Chevron Corp., BP plc, ConocoPhillips Co., and Royal Dutch Shell plc are expected to report a $9 billion, or 43 percent, increase in their combined third-quarter profits, according to analysts' estimates compiled by Thomson Financial. Last year, these five companies earned $20.7 billion in the July-September period, according to the AP.
The windfall isn't limited to the major integrated companies that produce, refine and sell energy at the retail level. Independent oil and gas producers, as well as independent refiners, are also expected to report double-digit profit increases. And despite indications of a slowdown in the growth rate for energy demand, the fourth quarter is already shaping up to be another good one for the industry -- in part because production of oil and natural gas in the Gulf of Mexico remains hindered, reported the AP.
The back-to-back hurricanes have already cost the region more than 11 percent of its annual oil production (about 60 million barrels so far) and nearly 8 percent of its yearly natural gas production (about 305 billion cubic feet so far). More than 60 percent of the Gulf's daily oil production and more than 50 percent of its daily natural gas production remain offline and some 2 million barrels of refining capacity remain out of service, according to the energy information service Platts.
However, Gheit told AP that because most energy producers "are covered by insurance for physical damage as well as business interruption, the negative impact on earnings is expected to be minimal."
The spot price for West Texas Intermediate crude oil averaged $63.19 per barrel during the third quarter, or 44 percent higher than last year, according to U.S. Energy Department estimates. Natural gas delivered at the Henry Hub averaged $9.79 per 1,000 cubic feet, an increase of 74 percent from a year ago.
The companies also benefited from rising prices for gasoline, diesel and jet fuel after the hurricane-related closure of refineries and pipelines, which instantly constrained supplies.
The industry outlook was good even before the hurricanes. There is less room for error in the U.S. energy market these days thanks to the reduction of fuel inventories and slow addition of new refining capacity -- trends that have helped make refining much more profitable in recent years.
"We're also selling record amounts of product and have been cutting costs through consolidations that further bolster the bottom lines," John Felmy, chief economist for the American Petroleum Institute, a Washington-based trade group, told the AP.
The staggeringly high profits -- ExxonMobil alone is expected to report an $8.9 billion third quarter profit -- could put energy firms on the defensive for making such windfall profits in the wake of a disaster.
"It's going to make people mad and it's going to be a PR nightmare for these companies," Matthew R. Simmons, a Houston oil and gas investment banker, said in the AP report.
The average retail price of gasoline nationwide briefly climbed above $3 a gallon in September. Last week, U.S. pump prices averaged $2.73 per gallon, or 69 cents higher than a year ago.
Refiners such as Valero Energy Corp., Tesoro Corp. and Frontier Oil Corp., are also expected to show huge profit gains. Analysts forecast these three companies earned a combined $1.37 billion for the third quarter, a 162 percent jump from last year, according to Thomson Financial.
Independent oil and natural gas producers -- many of which had rigs and platforms in the storm's path -- will also deliver upbeat earnings, analysts said in the AP report.
Anadarko Petroleum Corp., Apache Corp. and Devon Energy Corp. are expected to earn a combined $2.2 billion -- a 65 percent boost from the third quarter of 2004, according to analysts surveyed by Thomson Financial.