LONDON -- Oil giants Royal Dutch Shell and BP beat forecasts to post big rises in first quarter profits on Tuesday, lifting shares across the sector, as investors bet oil prices above $100/barrel would be an even bigger bonanza than expected.
Shell, the world's No. 2 non government-controlled oil company by market capitalization, said net income, excluding unrealized gains from changes in inventory values, rose 12 percent to a record $7.8 billion.
Industry No. 3 BP said profits, calculated on the same basis, rose 48 percent to $6.6 billion.
"It's an eye opener for investors, showing what the high commodity price environment really, really means in terms of earnings for the oil sector," Paul Andriessen, oil analyst at Fortis Bank in Amsterdam.
Shell's London-listed "B" shares rose 5.1 percent to 2021 pence by 4:51 a.m. EDT (0851 GMT), while BP's rose 5.2 percent to 608-1/2 pence.
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The DJ Stoxx European oil and gas sector index rose 2.9 percent, compared to a 0.1 percent drop in the FTSEurofirst 300 index of top European shares.
The oil majors' core upstream, oil and gas production units were the main drivers of the bumper profits, thanks to record oil prices, which averaged almost $100/barrel during the quarter, and strong gas prices in the U.S. and Europe.
Oil and gas production was flat at both companies.
Despite the run-up in oil prices, which hit a new high of almost $120/barrel this week, investors have been slow to reward oil stocks, amid fears of rising costs, stagnant or falling production and a dearth of new oil finds.
Andriessen said Tuesday's results should lead to a re-rating of shares across the sector. "This is a trigger," he said.
Other analysts said that in the near-term, Shell and BP's results would boost expectations regarding earnings releases due over the next week from other industry players including U.S. majors Exxon Mobil and Chevron, British gas producer BG Group and France's Total.
"The outlook appears to remain strong into 2Q, 2008, with oil prices averaging $107/bbl, and the prospect of further sector earnings upgrades," James Neale, oil analyst at Citigroup, said in a research note.
Almost all BP and Shell's business units performed well, even divisions such as refining and fuel retailing which were expected to be squeezed by difficulties in passing higher crude prices onto consumers.
Refining margins collapsed during the quarter but the impact on the companies' profits was not as bad as expected, partly because of firmer margins in retailing fuel and lubricants at forecourts and in sales to the aviation industry.
BP had been expected to report a loss in its refining and marketing division but actually reported a $1.2 billion profit.
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