Skip navigation
Watchlist Sponsored By :


Current DateTime: 10:14:28 29 Nov 2009
LinksList Documentid: 24355697
  • Runway Angels

      The superbowl of fashion shows, models walk down the runway at the 2009 Victoria's Secret Show.

  • Smartphone Guide

      Here's a need-to-know guide to nine devices, based on features, price, network and platform.

  • Wines for the Holidays

      Not quite sure what wine to pair with Turkey or Creme Brulee? Our experts do.

FEATURED QUIZZES


Current DateTime: 10:14:28 29 Nov 2009
LinksList Documentid: 33793611
  • How Well Do You Know Your Bird?

      Let's talk turkey. Test your turkey knowledge and perhaps pick up a bit of trivia to trot out at your holiday meal.

  • A Healthier & Wealthier You

      Take the following quiz and find out how much you know about the impact of obesity on the health of the U.S. economy.

  • The Billionaire BFF's

      Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?


Current DateTime: 10:14:28 29 Nov 2009
LinksList Documentid: 24890560
  • Winterizing Your Portfolio

      If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.

  • Investor's Guide to Real Estate

      Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.

  • Alternative Investing

      Stocks and bonds? Sure. But it's a big world out there for investors.

powered by digg
Big Oil's Profits Seen Boosted by Record Crude
By: Reuters | 25 Apr 2008 | 03:43 PM ET
Text Size

ExxonMobil, Royal Dutch Shell and BP are expected to report bumper first-quarter profits next week, thanks to record crude prices, but $110 per barrel oil will also squeeze refining profits and delay a return to oil production growth.

Brent and benchmark U.S. crude prices rose around 70 percent in the first quarter compared with the same period last year, to average almost $97/bbl and $98/bbl, respectively, while gas prices also rose.

Earnings growth, though generally strong, is lagging behind.

"The profitability of the industry is clearly not as robust as the headline oil price might at first imply," Lucas Herrmann, analyst at said Deutsche Bank said.

London-based BP [BP  Loading...      ()], which is undergoing a restructuring under Chief Executive Tony Hayward who took over a year ago, is expected to be the strongest gainer in the industry's top tier.

Nine analysts polled by Reuters said, on average, they expect BP to report a 31 percent rise in net replacement cost profit, which is comparable to U.S. net income, to $5.3 billion, excluding one-off items.

The world's largest non-government-controlled oil company by market value, Exxon [XOM  Loading...      ()], is expected to see net income rise around 22 percent to over $11 billion in the first quarter.

Industry number 2, Shell [RDSA  Loading...      ()], is expected to report only a 4 percent rise to $6.8 billion in current cost of supply net profit, its measure, which is also comparable to U.S. net income as it strips out gains in the value of inventories, excluding one-offs.

One reason that profit growth lags oil price rises is taxes, and higher prices have encouraged governments from Russia to Venezuela to hike these.

Sluggish Production

Another reason for the relatively muted profit growth is the increasing use of production sharing contracts (PSCs) with host governments, under which companies receive a return based on the value of their investment, and so have limited exposure to oil prices.

Under traditional royalty schemes, which still dominate in OECD countries, companies own the oil or gas field and reap the gains when prices rise.

Under PSCs, companies are paid in crude, but they receive less oil if prices rise.

Hence, the big jump in crude prices in the first quarter also means investors will have to wait for the sector to deliver a long-awaited return to output growth.

Analysts predict Shell's oil and gas production will have fallen over 3 percent to 3.2 million barrels of oil equivalent per day (boepd), compared with the same period in 2007.

Analysts said Exxon's first-quarter output may also fall from last year, when it was 4.12 million boepd, while BP's is forecast to be flat at 3.9 million boepd.

After three years of falling production as mature fields decline and new finds are harder to locate, partly because resource holders reserve the richest prospects for their state oil companies, investors had hoped 2008 would be a year of growth for the industry.

Analysts predict a drop of up to 1 percent in production, on average, across the sector in the quarter but remain optimistic growth may return later this year.

High oil prices are also putting pressure on refining margins, which halved on average across the globe in the first quarter compared to 2007, according to data from BP.

Refiners found it hard to pass on crude rises to customers in full, especially in North America.

BP's largely U.S.-focused refining division is expected to report a loss for the quarter despite facilities previously shut-in coming back on line.

Across the major oil companies' businesses, costs are expected to have continued rising.

A tight market for oilfield services, equipment and facilities construction—partly because high crude prices are driving increased drilling and development—has led to input inflation which some executives said is running at an annual rate of 20 percent.

Analysts at Dresdner Kleinwort said rising capital costs would likely mean Shell had net cash outflow for the quarter, after paying dividends and buying back shares.

Such an outflow despite the oil and gas price environment would add to investors' concerns that high oil prices may mask an industry failure to contain costs, implement projects effectively and make businesses grow.

"The sector has "form" in eroding macro upside with operational under-delivery," analysts at Citigroup said in a research note.

Copyright 2009 Reuters. Click for restrictions.
Tools:
Print EmailAdd This share icon
  • digg share

CNBC HIGHLIGHTS

  • These four sectors will be the next to lead the market.
  • Zhu Zhu Pets are this year's must-have toy, fetching $40 or more on eBay.
  • T shirt man
  • From the why-didn’t-I-think-of-that file, we present Jason Sadler, a man whose job is wearing T-shirts.
  • It may be the most unusual guide to business you'll read.
  • Shopping for a gadget hound? The choices can be baffling. Here are a few that should be a hit.
  • "The Who" will be the halftime act for Super Bowl XLIV on Feb. 7 in Miami. Is the NFL behind the times?
ADD COMMENTS
Remaining characters


Current DateTime: 01:01:45 29 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 01:07:47 29 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 06:30:25 29 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 01:03:47 29 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters