BP and Shell post profits, warn on prices
BRITISH energy giant BP and its Anglo-Dutch rival Shell unveiled upbeat quarterly profits as both kept a tight rein on costs but warned over prevailing low oil prices.
BP’s underlying replacement cost profit – the benchmark industry measure which excludes exceptional items and oil price fluctuations – tumbled 49 percent to US$933 million (851 million euros) in the three months to September.
However, that comfortably beat expectations of $719.2 million, according to analysts.
Royal Dutch Shell added that its profit excluding one-off items and on a current cost-of-supplies (CCS) basis – which also strips out the changing value of oil inventories – advanced 17pc to $2.79 billion.
That easily eclipsed forecasts of $1.79 billion, as the group was aided by rising output and cost-cutting after its takeover of rival BG Group.
“BP and Shell delivered improved figures in the third quarter, but there are yet plenty of risks in the oil market as [oil] prices remain under pressure,” said ETX analyst Neil Wilson.
“Drilling down to the key fundamentals, oil producers have to cut costs to survive in a lower-for-longer price environment.”
For its part, BP cut 2016 capital expenditure, or capex, to $16 billion compared with the previous guidance of between $17 billion and $19 billion.
It warned oil refining margins would continue to take a hit in the final three months of 2016, but production would increase slightly.
BP is slashing costs to counter weak oil global oil prices and sliding margins, with the cost of crude at around $46 per barrel compared with $50 a year ago.
Shell is also embarking on a costcutting drive and an ongoing plan to offload $30 billion of assets.
In the third quarter, Shell reaped the benefits of its recent £47 billion acquisition of BG Group, which strengthened its position in liquefied natural gas. However, Shell chief executive Ben van Beurden warned over the outlook.
“Shell delivered better results this quarter, reflecting strong operational and cost performance. But lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain,” Mr van Beurden said.
“The integration of Shell and BG is now essentially done and has been completed well ahead of plan. It’s been an important catalyst for the significant and lasting changes we are making to the working practices, cost structure and portfolio.”
Falling oil prices bite into revenues and profits of energy majors.
US oil giants ExxonMobil and Chevron both revealed last week that low prices and weak refining margins had weighed on their thirdquarter profits.
“Oil prices are down to around a third of where they were in 2008 and as recently as 2014 we saw $100 a barrel,” added Mr Wilson at ETX Capital.
The price of crude slumped to under $30 at the beginning of this year, but has since recovered somewhat to stand at current levels of just below $50 on over supply.
“That [price drop] has huge implications for margins, capex and earnings growth for oil majors,” said Mr Wilson.
Shell also revealed that it rebounded into net profit of $1.4 billion in the third quarter. That contrasted with a net loss of $7.4 billion last year, which was skewed by vast write-downs after the scrapping of costly projects in Alaska and Canada.
BP meanwhile saw net profits surge to $1.6 billion from just $46 million a year earlier.
“Despite the respite provided by an improved oil price, conditions remain tough in the oil and gas sector,” noted Nicholas Hyett, equity analyst at Hargreaves Lansdown. –
Ben van Beurden says lower oil prices continue to be a challenge.