WRAPUP 3-Costs hit Big Oil; shale surge lifts smaller producers

By Andrew Callus and Anna Driver LONDON/HOUSTON, Aug 1 (Reuters) - Some of the westernworld's top oil companies abandoned output targets and missedprofit forecasts on Thursday as they promised to clamp down onrising costs that hurt quarterly results. Costs for workers and materials are climbing as the industryscrambles to bring new wells and pipelines into operation. Companies owning refineries, from smaller independents tomajors that have operations in all aspects of the oil business,also had profits squeezed by price shocks, maintenance work, andthe rising cost of ethanol credits they often buy to comply withcleaner-fuel rules in the United States. In contrast, smaller U.S. producers, which tend to have moreof their operations inside the United States and relatively moreexposure to shale deposits, reported surging output. "It's a difficult time for the big integrateds. They are notseeing production growth, refining margins are deteriorating,and costs are going up. That's not a good combination," said Brian Youngberg, an oil analyst with Edward Jones in St Louis. Among a slew of quarterly results on Thursday, Royal DutchShell and Exxon Mobil disappointed Wall Street.The pair are two of the top three investor-controlled oilcompanies in the world. . Thethird, Chevron, is due to report results on Friday. Shell did what several of its peers did some time ago -abandon a promise to increase production growth so that it can meet its financial targets for cash flow growth and spending. The earnings reports followed a profit miss from industryNo. 4, BP, on Tuesday. Only Total, Europe's No. 3 behind Shell and BP,impressed investors with its first quarterly rise in productionin three years. Exxon, the world's largest publicly traded oil companyreported a profit of $6.9 billion, down 57 percent from $15.9billion a year earlier. Its oil and natural gas production fell 1.9 percent. Thecompany is working to put new projects online to replacedeclining fields. SHALE OUTPUT LIFTS SMALLER PRODUCERS Among smaller U.S. firms, ConocoPhillips reported abetter-than-expected profit and raised its full-year productionforecast. It said output from the Eagle Ford shale field in Texasalmost doubled in the second quarter to 121,000 barrels of oilequivalent per day. Conoco's combined oil and gas production inthe Eagle Ford shale field, the Bakken shale field in NorthDakota, and Permian Basin in Texas rose 47 percent. ConocoPhillips' net income fell 10 percent to $2.05 billion.Year-earlier earnings included $500 million from downstreamoperations before the company spun off Phillips 66 inMay 2012. Apache Corp reported a higher quarterly profit, inline with Wall Street expectations. It sold its Gulf of Mexicoshelf assets last month to focus on onshore production. It saidits North American onshore liquids production rose 42 percent to175,000 barrels per day in the latest quarter. "We expect Apache to have an improved asset mix that willdrive more predictable production growth and strong returns,"Chief Executive Steve Farris said in a statement. Chesapeake Energy Corp's new chief executive, DougLawler, said the company was reviewing its partnerships andassets as the second-largest U.S. natural gas provider tries tosimplify its structure and improve financial discipline. The company, which experienced a severe liquidity crunch in2012 after spending heavily for years to acquire drillingacreage, reported a better-than-expected quarterly profit as itproduced more crude oil than Wall Street targeted. Its sharesrose 7 percent to the highest level in more than a year. REFINERS HOPE FOR WIDER MARGINS Among refiners, Marathon Petroleum Corp and itspeers are betting on new pipelines and higher volumes to winback margins that have shrunk as discounts on U.S. cruderelative to the more expensive European benchmark have narrowed. That has erased a cost advantage that U.S. refiners hadenjoyed for nearly three years. The spreads could widen again as extra pipeline capacitycomes on stream to move Texas crude to the Gulf Coast. HigherU.S. oil output will also offset crude draws from the U.S. crudefutures hub at Cushing, Oklahoma. U.S. refiners are also being hurt by the rising cost ofethanol credits, or Renewable Identification Numbers (RINs),which they are required to purchase in order to meet blendingtargets set by the U.S. Environmental Protection Agency.