Royal Dutch/Shell Group and BP, Europe's two largest oil companies, will report that first quarter profit fell by at least fifty percent because of lower prices and the worst slump in oil refining in over a decade, analysts have said. The London based BP will probably report on Tuesday that profits slid to $1.46 billion, down sixty one percent, while Shell two days later will post earnings of $1.75 billion, a drop of fifty five percent, according to the average estimate of five analysts in a survey. Exxon Mobil on Tuesday reported a fifty eight percent decline in earnings in the period, when oil prices in London on average were about a fifth lower than a year ago. Profit from making fuels collapsed as the fifth warmest US winter on record lowered demand for heating oil, while air travel and jet fuel use slowed following the September 11th attacks. “People look at the oil price (about $26 a barrel) and think the oil industry must be doing really well, but absolutely not,” said Steve Thornber, who manages 1 billion pounds ($1.5 billion) in UK equities at Threadneedle Asset Management Ltd., “The rest of the business is really struggling.” Exxon, which is BP and Shell's bigger rival, reported that first quarter earnings fell to $2.09 billion. Its unit that makes and sells gasoline and other fuels posted a $28 million loss, compared with a billion dollar profit in the same period only a year ago. BP shares have risen 5.8 percent this year, while Exxon and Shell's London shares have gained about two percent. BP plans to increase oil and gas production more quickly than Shell and Exxon. Earlier this month, BP said its results will reflect the worst refining and marketing environment since the early 1990s. Refining margins in Europe reached the lowest level in more than a decade, Shell said. “It was absolutely diabolical, the lowest level certainly for fifteen years and maybe further back,” said Adrian Loader, the head of Shell's fuels business in Europe, at an energy conference in Paris on Thursday. BP will likely post a bigger quarterly decline than Shell because of its greater exposure to the US, analysts said. US natural gas accounts for about twenty percent of BP's production, more than the proportion at Europes top producer. US natural gas prices averaged $2.49 per million British thermal units on the New York Mercantile Exchange during the quarter, down sixty percent from $6.24 last year. “BP's results will fall further compared to this time last year because they were more exposed to the high refining margins and gas prices we saw last year,” said Jon Rigby, an analyst at BNP Paribas. He expects a a sixty percent drop in profit at BP and a 51 percent decline at Shell. This time, BP's results reflect a UK accounting rule change which will increase the company's tax rate to about 35 percent to 36 percent in the future, up from the twenty six percent in 2001, the company has said. BP restated earlier results to reflect the adjustment. Investors will scrutinize the companies' progress on expansion in oil and gas production. BP has targeted an average annual increase of five and a half percent, more than the three percent growth at Exxon and Shell. “The prime challenge is to deliver the growth,” said Peter Davies, BP's chief economist. “We delivered five and a half percent for 2001 and are confident of repeating this in 2002.” BP has said that production in the quarter will probably be in line with year ago levels, falling short of some analysts' forecasts and increasing the challenge for the company later in the year. Shell, which is based in London and The Hague, will probably not show any expansion in oil and gas output in the first quarter, according to Commerzbank Securities. Last September, Shell disappointed investors by reducing its average annual growth target to three percent through to 2005, down from five percent. The analysts surveyed expected BP to post so called replacement cost profit, before special items and amortization, of between $1.28 billion and $1.55 billion. Profit before one time items at Shell, which does not release earnings outlooks, is forecast between $1.28 billion and $1.98 billion. BP releases its earnings report Tuesday at 10 a.m. London time. Shell follows at the same time two days later.