Good news continues to flow from the energy sector.

Excluding special charges,

Halliburton

(HAL) - Get Report

posted third-quarter profits that handily beat the consensus estimate.

Valero

(VLO) - Get Report

once again delivered on its promise to top Wall Street expectations. And

BP

(BP) - Get Report

set a positive tone for other super majors as it reported that profits -- driven by record energy prices and strong refinery margins -- nearly doubled in the latest period.

Still, Halliburton posted another blemished report overall. The embattled energy services firm -- known for its ties to Vice President Dick Cheney and its controversial contracts in Iraq -- generated third-quarter revenue of $4.8 billion that fell $170 million shy of expectations. The company also swallowed a $230 million asbestos-related charge that caused it to swing to a $44 million third-quarter loss.

Excluding special charges, however, Halliburton grew third-quarter operating profits by 14% to $320 million. It reported earnings per share of 42 cents a share that beat the consensus estimate by 6 cents.

Halliburton credited its energy services division -- rather than the KBR unit working in Iraq -- for its third-quarter strength. The unit enjoyed "record quarterly revenue, operating income and operating margins," Halliburton CEO Dave Lesar said.

Energy services grew revenue by 17% -- and operating profits by a whopping 144% -- during the latest period. Still, the unit's $2.1 billion in revenue fell shy of the $2.7 billion reported by KBR. Halliburton attributed the 15% jump in KBR's third-quarter revenue to "government contract activities, primarily in the Middle East." Still, KBR failed to eek out a profit, swinging to a $50 million quarterly loss instead.

Even so, Halliburton remains upbeat about the division.

"I am pleased with the progress of KBR's recent actions," Lesar said. "These efforts should position KBR for profitability in the future."

Halliburton's stock, threatened a day earlier by calls for a government-led KBR probe, jumped 2.6% to $35.25 on the quarterly update. The shares came under temporary pressure on Monday, when

The New York Times

reported that the top civilian contracting official for the Army Corps of Engineers had called for an investigation of KBR contract wins in both Iraq and the Balkans.

In the refinery sector, Valero posted more modest gains even after topping third-quarter expectations and insisting that fourth-quarter analyst estimates "remain significantly understated."

The company grew third-quarter revenue by 45% to $14.3 billion. But it more than doubled net income, which came in at $435 million, and posted earnings per share of $1.57 that beat the consensus estimate by 3 cents.

How Sweet It Is

Valero pointed to record crude spreads -- or the price difference between sweet and sour crude oil -- as its biggest source of refining profits. Valero refineries are equipped to process sour crude oils that, last quarter, sold for $12 a barrel less than sweet crude.

"Our results this quarter prove the importance of our superior leverage to sour crude discounts," said Valero CEO Bill Greehey. "Refined product margins ... were outstanding this quarter, but the real story was the significant move in sour crude discounts."

Since the close of the quarter, those discounts have continued to expand. The same Maya crude that sold at a $12 discount in the third quarter, Valero reported, is now selling for $14 less than sweet crude oil. Thus, the company expressed confidence that it can easily beat fourth-quarter earnings estimates of 90 cents a share.

Harry Chernoff, an analyst at Pathfinder Capital Advisors, tends to agree. He estimates that Valero could top its third-quarter profits of $1.57 a share if current crude spreads continue. Looking ahead, he says the company could see crude spreads drop in 2005 -- but not enough to drag down next year's earnings to the current consensus estimate of $4.28 a share.

"Barring a severe decline in demand, discounts for heavy, sour crude are not going away, and companies like Valero -- also

Tesoro

(TSO)

and

Premcor

(PCO)

-- are going to be making large and sustainable profits," said Chernoff, who owns stock in Valero himself. "The bearish analysts have missed this point and continue to miss this point."

Valero's stock barely budged, inching up 13 cents to $42.87 during the morning session.

Meanwhile, BP's stock actually fell -- sliding 1.3% to $58.72 -- after news of a strong third quarter. The company grew profits by 91% to $4.48 billion in the latest period. It boasted record exploration and production earnings, due to high energy prices and increased volumes, and a big jump in refinery profits as well. The company's renewable energy business, lifted by liquid natural gas and solar results, also posted gains.

"This has been another strong performance against the backdrop of strong global demand," said BP CEO Lord Browne.

The remaining oil majors -- starting with

ConocoPhillips

(COP) - Get Report

on Wednesday -- are slated to report third-quarter results this week as well.