Shell and BP beat earn­ings fore­casts

Kuwait Times - - BUSINESS -

Royal Dutch Shell and BP yes­ter­day joined peers in re­port­ing higher than ex­pected earn­ings by mak­ing fur­ther deep cuts in spend­ing to cope with an oil price down­turn now in its third year. The com­pa­nies said they were well on the way to adapt­ing to the more than halv­ing in prices, but con­tin­ued un­cer­tainty will test their abil­ity to in­vest for fu­ture growth and re­tain rel­a­tively large div­i­dends ex­pected by their share­hold­ers. Shell’s stock rose by over 3 per­cent as it an­nounced higher quar­terly earn­ings than arch-ri­val U.S. Exxon Mo­bil, the world’s largest listed oil com­pany by out­put.

The An­glo-Dutch ma­jor, which ac­quired ri­val BG for $54 bil­lion ear­lier this year, had been un­der pres­sure to cut costs af­ter sec­ond quar­ter earn­ings came in around 50 per­cent be­low fore­casts.

By con­trast, BP’s stock fell by 2.1 per­cent by 1145 GMT as some an­a­lysts said its re­sults were boosted by a one-off tax gain, mean­ing its longer-term prof­its and abil­ity to pay div­i­dends could still be at risk. Shell’s Chief Ex­ec­u­tive Of­fi­cer Ben van Beur­den said the oil sec­tor had yet to emerge from trou­bled waters, but huge cost sav­ings meant oil ma­jors were get­ting closer to bal­anc­ing their op­er­a­tions at to­day’s oil prices of around $50 a bar­rel.

The prospects for an oil price re­cov­ery are still un­clear, van Beur­den said, de­spite at­tempts by OPEC and other pro­duc­ers to agree a deal to limit out­put and re­duce the global glut which has pushed oil prices down by 50 per­cent since June 2014. “Lower oil prices con­tinue to be a sig­nif­i­cant chal­lenge across the busi­ness, and the out­look re­mains uncer­tain,” van Beur­den said.

The world’s top oil and gas com­pa­nies, in­clud­ing Exxon and Chevron, re­ported sharp drops in quar­terly re­sults last week due to lower oil prices and weaker re­fin­ing mar­gins. But at the same time, most have shown they were ad­just­ing to the new en­vi­ron­ment, with both Exxon and Chevron also beat­ing earn­ings ex­pec­ta­tions. Chevron plans to fo­cus fu­ture growth on US on­shore shale pro­duc­tion, where in­vest­ments are smaller and pro­duc­tion starts faster com­pared to large off­shore projects. Exxon warned it may need to slash proved oil and gas re­serves on its books by nearly 20 per­cent, or some 4.6 bil­lion bar­rels, if oil prices stay low for the rest of 2016.

French oil ma­jor To­tal also beat third quar­ter in­come ex­pec­ta­tions helped by cost cuts, new projects and re­new­ables and only smaller ri­vals Nor­way’s Sta­toil and Italy’s ENI missed ex­pec­ta­tions due to lower-than-ex­pected out­put. BP Chief Fi­nan­cial Of­fi­cer Brian Gil­vary said the Bri­tish com­pany was on track to re­bal­ance cash flows next year at $50 to $55 a bar­rel and its fu­ture fo­cus ar­eas would in­clude Rus­sia and ar­eas where it could bring tech­nol­ogy to bear.

“This al­low us to sus­tain our div­i­dend whilst still in­vest­ing enough to grow long term,” he said. In 2014, the world’s top oil com­pa­nies re­quired an oil price of $113 a bar­rel in or­der to cover their spend­ing and div­i­dends, ac­cord­ing to Jef­feries an­a­lysts. The breakeven dropped to around $60 a bar­rel in 2016 and is ex­pected to hover at around $50 a bar­rel next year.

BP ben­e­fited from UK fis­cal regime changes, re­sult­ing in a $164 mil­lion tax credit in the third quar­ter, com­pared with a $1.16 bil­lion tax bill in the same quar­ter last year. “De­spite mixed num­bers and a mod­est in­crease in gear­ing, the over­all trend in cost and capex sav­ings and cash flows at BP con­tin­ues to head in the right di­rec­tion,” an­a­lysts from Mor­gan Stan­ley said in a note. BP re­ported a near halv­ing in thirdquar­ter earn­ings and slashed an­other $1 bil­lion from its 2016 in­vest­ment plan, while Shell saw an 18 per­cent rise in prof­its and low­ered next year’s cap­i­tal spend­ing to the bot­tom of the ex­pected range.

At $2.8 bil­lion in the third quar­ter, Shell’s net in­come was above Exxon’s third quar­ter net in­come of $2.65 bil­lion. Both Shell and BP main­tained their div­i­dends un­changed as ex­pected. As well as slash­ing spend­ing, oil com­pa­nies have scrapped new projects, cut tens of thou­sands of jobs, rene­go­ti­ated sup­ply con­tracts and in­creased bor­row­ing since prices be­gan a sus­tained fall in June 2014.

All the ma­jors apart from Eni have main­tained or in­creased their div­i­dends through­out the down­turn to re­tain share­holder loy­alty. Shell has not cut its div­i­dend since World War Two. — Reuters

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