Early in the second quarter of 2010, the Deepwater Horizon drilling rig explosion sent shockwaves across the globe. As oil continued to gush from the bottom of the Gulf of Mexico, integrated petroleum giant BP plc (BP) came under more and more fire. Numerous strategies to stop the leak were discussed, some attempted and failed until only recently. The company’s reputation and future were called into question, as images of oil creeping to shore and stories of a devastated seafood industry were flashed daily across the news media. In a clear demonstration of the scale of this public relations debacle, BP even purchased the rights to terms such as “oil spill” and “oil spill claims” on Internet search engines such as Google (GOOG) and Yahoo! (YHOO) in an effort to repair some of its damaged image.

And with pressure mounting, BP’s embattled Chief Executive Tony Hayward tendered his resignation. On October 1st, Mr. Hayward will be replaced by Robert Dudley, the BP engineer who has spearheaded the company's clean-up efforts. His succession marks the first time the British company has been led by an American.

Simultaneous to this announcement of the changing of the guard, BP reported a $17 billion loss in the second quarter. However, lumped into that number is $32.2 billion in charges related to the ongoing clean-up efforts. Excluding charges, the company turned a $2.1 billion profit. Meantime, it indicated its intentions to raise up to $30 billion over the next year and a half through asset sales, which are already under way, to pay for the cleanup and compensation fund.

Although the $2.1 billion profit is not BP’s most impressive showing, it was enough to spark investor optimism. Indeed, the Gulf spill took a toll on shares industrywide, with BP leading the plunge. In fact, the British company’s ADRs lost over 50% of their value in the three months following the disaster. That said, they have recouped almost half of that in the less-than two weeks since reporting June-quarter earnings. 

The recent price history of the industry’s other top players follow a similar trajectory, only to a less drastic extent. Most suffered some initial guilt-by-association fallout, but their recent bottom-line strength has rallied their shares.

For example, Dow 30 component Exxon Mobil's (XOM - Free Analyst Report) second-quarter share earnings of $1.60 were above our estimate of $1.40 and nearly double the year-earlier figure of $0.81. Strength was across the board, with the oil and natural gas production, refining, and chemicals businesses all doing better both stateside and abroad. Significantly higher oil prices were a big help. Also notable was a turnaround in refining in the United States, where Exxon suffered a loss a year ago.

Good news on the production front cheered investors, as well. The company is getting a big lift from the recent startup of some large natural gas projects in Qatar. Those endeavors more than offset a slight dip in the amount of oil pumped. Combined oil and gas production rose a healthy 8% in the quarter.

The closing of the XTO Energy acquisition was another highlight. Exxon rarely does acquisitions, preferring to develop its own properties using in-house methodologies. The last corporate purchase prior to this one was Mobil, over ten years ago, so the XTO deal can be viewed as something special. In this case, Exxon is gaining access to large-scale unconventional natural gas reserves in the United States. The move will further pad production, but will dilute year-ahead earnings modestly.

The Dow’s other oil behemoth Chevron (CVX - Free Analyst Report) followed suit when it reported results the next day. The world's fourth-largest oil company, based on proven reserves, registered a substantial year-over-year earnings increase, posting share net of $2.70. This not only surpassed our $2.23 estimate, it was a whopping 210% above the year-earlier figure.

Both domestic and international upstream (exploration) earnings rose thanks to new production from major project startups, expansion of capacity at Tengiz, Kazakhstan, and ramp ups in the U.S. and Brazil. The company's average sales price per barrel of crude oil and natural gas were also higher. Crude oil rose to $71 a barrel, compared with $52 a year earlier, and natural gas increased to $4.20 per thousand cubic feet, compared with $3.48 in 2009's June quarter. Foreign currency effects increased profits in the quarter by $241 million, in contrast to a reduction of $453 million a year earlier.

Downstream (refining) results were notable as a result of enhanced refining margins, a favorable change in effects on derivatives, and higher chemical sales (thanks to inventory replenishment).

Given the recent bottom-line performances of Exxon and Chevron, we raised our full-year forecasts for both. We now look for Exxon’s earnings to climb 55% this year, while Chevron will probably double its total from 2009.

It was the same story across the board. Higher oil prices and widening refining margins propelled second-quarter earnings for companies such as Royal Dutch Shell (RDSA), ConocoPhillips (COP), Total (TOT), and Occidental Petroleum (OXY).

The recent progress capping the leak and the clean-up efforts should help the group move past this environmental disaster. It already appears investors have returned their focus to the bottom lines. Now, it’s up to the integrated petroleum companies to live up to their end of the bargain and continue to produce results.