Updated from 9:50 a.m. EDT

The nation's top three oil companies reported record third-quarter earnings on Tuesday, as a surge in oil and gas prices helped push exploration and production profits up sharply.

ExxonMobil

(XOM) - Get Report

, the country's largest oil company, nearly doubled its quarterly profits, beating Wall Street estimates on decade-high oil prices and improved worldwide refining margins.

Excluding effects of the merger, the Irving, Texas-based oil giant earned a record $4.29 billion in the quarter, or $1.22 a share. That's up 96% from $2.19 billion, or 62 cents per share, earned in the same period a year ago. On average, analysts surveyed by

First Call/Thomson Financial

had estimated that ExxonMobil would earn $1.16 per share.

Including net favorable tax gains from asset divestments related to the merger, ExxonMobil's quarterly earnings would have more than doubled to $4.49 billion, or $1.28 per share. The company's revenues grew by nearly $10 billion, or 20%, to $58.85 billion from $48.99 billion in the same year-ago period.

Chevron Gushing Green

Chevron

( CHV), the country's second-largest oil company, more than doubled its third-quarter profits, soaring past Wall Street estimates.

The San Francisco-based oil giant, which announced last week it would acquire rival

Texaco

(TX) - Get Report

, said quarterly earnings excluding special items rose to $1.65 billion, or $2.53 a diluted share. In the same period a year ago, Chevron earned $702 million.

Chevron's earnings were more than 50% higher than the consensus forecast of $1.99 a share, according to analysts surveyed by First Call/Thomson Financial. The company reported quarterly revenues of $13.6 billion, an increase of one-third from $10.2 billion in the third quarter of 1999.

Texaco's Profits Up 80%

Texaco, the third-largest U.S. oil company, said its third-quarter profits rose 80%, beating Wall Street expectations.

White Plains, N.Y.-based Texaco said income before special items climbed to a record $815 million, or $1.49 a share. In the same period a year ago, the company earned $453 million, or 83 cents a share. Revenues rose 38% to $13.4 billion.

Like its top two counterparts, Texaco's earnings surpassed analysts' consensus estimate of $1.37 a share, according to First Call/Thomson Financial.

The three companies said their strong results reflected the sharp increase in crude oil prices, which reached a 10-year

high of $37.80 last month, and in natural gas and refined product prices.

The surge in natural gas and oil prices helped ExxonMobil's exploration and production business post earnings of $3.1 billion, more than twice the $1.5 billion it reported in the same period a year ago. ExxonMobil also increased its capital and exploration spending to $2.6 billion in the third quarter, up about 10% from the previous quarter, and anticipates it should continue to increase in the fourth quarter.

Excluding special items, Chevron doubled quarterly earnings from its U.S. refining, marketing and transportation operations to $260 million. Meanwhile, operating earnings from its exploration and production business jumped nearly 120% to $1.29 billion in the third quarter, on higher prices and increased production.

Similarly, Texaco said higher oil and gas prices helped it nearly double third-quarter earnings from its exploration and production business to $479 million, from $258 million in the same year-ago period.

Oil Stocks Slip

Despite the strong earnings reports, oil stocks fell sector-wide on Tuesday. Shares of ExxonMobil ended the day down $2.31, or 2.6%, at $86.75. Chevron shares closed down 31 cents at $82.25. Texaco was down $1.06, or 1.8%, at $58.06.

The muted market reaction may reflect an anticipated decrease in oil and natural gas prices in the current and upcoming quarters, cutting into potential profits for oil companies.

"It's a relatively temporary bubble in the oil industry," said David Kelly, senior vice president and economic advisor at

Putnam Investments

. "It's the perfect situation now: tight supplies and high prices. It's a good time for the industry, but it's not going to last."

Kelly said the price of crude oil, which jumped above $34 a barrel on Tuesday, is likely at its peak and should drop back into the mid-$20s -- or lower -- over the next several months.

Industry analysts say that could be good news in the short-term for the major oil companies, however, as the price moderation will help improve marketing and chemical margins. In addition, analysts say recent natural gas prices are only partially reflected in third-quarter earnings and are likely to provide additional bottom-line benefits in the fourth quarter.