Investors in the world's biggest oil companies are expected to look beyond the bumper profits the groups will announce next week on the back of higher oil prices, and seek clues on how the companies can maintain income growth as crude stabilizes.

The five biggest western oil producers by market value -- Exxon Mobil Corp (XOM.N), Royal Dutch Shell Plc (RDSa.L), Chevron Corp (CVX.N), BP Plc (BP.L) and France's Total SA (TOTF.PA), known collectively as the supermajors -- are expected to announce an average year-on-year rise in net income of around 31 percent, according to analysts forecasts compiled by Reuters.

However, the result would lag a 48 percent jump in Brent crude to $113/barrel in the quarter. Also, earnings are expected to be lower than in the second quarter, after global economic uncertainty prompted an easing of oil prices in recent months.

After six or seven quarters of strong profit growth driven by rising oil prices, investors are questioning whether companies can eke out earnings rises next year and beyond, in the absence of the tail wind of ever-soaring crude.

The past few quarters have seen fairly mediocre earnings leverage (to the crude price rise), analysts at UBS said in a research note. We fully expect investors to want to dig deeper into why this is and whether it can reverse.

Exxon's third-quarter net income is expected to jump 40 percent on last year to $10.26 billion, according to I/B/E/S estimates, while Shell's current cost of supply (CCS) net income, excluding one-offs, is predicted to rise 34 percent to $6.61 billion, according to a Reuters poll of nine analysts.

A relatively weak third quarter last year will help Chevron lead the pack with a 78 percent jump in net income to $6.71 billion, while BP's sale of oil fields to pay for the Gulf of Mexico oil spill, together with increased maintenance to improve safety, will hit production and push replacement cost (RC) net income down 9 percent to $5.03 billion.

Paris-based Total's net income, excluding one-offs and inventory factors, is expected to rise 13 percent to 2.81 billion euros.

RC and CCS earnings strip out unrealized gains or losses related to changes in the value of inventories, and as such are comparable with net income under U.S. accounting rules.


The past half-decade has seen production fall at most big oil companies, with new field start-ups failing to match natural declines in portfolios.

Investors, encouraged by promises of new projects, had hoped 2011 would see a return to growth, but the second quarter saw output falls. Analysts at Deutsche Bank and brokerage Bernstein predicted a 5.0 percent year-on-year drop for the sector in the third quarter.

This is partly due to unforeseen events such as the conflict in Libya and delays in getting back to work in the Gulf of Mexico, where a drilling ban was imposed during the oil spill. Shareholders will try to read through such noise to see whether companies are moving in the right direction.

Trends on industry costs will also be closely eyed next week. The spike in oil prices from 2004 to 2008 led to massive inflation in the cost of building and operating oil and gas facilities, which in turn eroded much of the gains of rising crude.

While costs fell in 2009 and 2010, due to the global economic crisis, the trend appears to be on the turn, potentially creating further headwinds for oil producers. Deutsche Bank expects cost rises of 6 percent in the coming year.

However, the results are also expected to reveal some bright spots.

BP said its global refining marker margin was up 25 percent compared with a year ago, suggesting the often-troubled business of converting crude into motor fuel will create some positive earnings momentum in the quarter.

Continued outages at nuclear plants in Japan are expected to lead to strong demand for liquefied natural gas, creating a boost for companies such as Shell and Exxon which are big in this business.

(Additional reporting by Anna Driver in Houston; Editing by David Holmes)