Royal Dutch Shell posted the biggest profit —$27.6 billion U.S. — of any European company in 2007, but lower production and indications of disappointing reserves suggest future earnings growth will rely on oil price rises.
The world’s second-largest non- government-controlled oil company by market value yesterday said its fourth-quarter current cost of supply (CCS) net income rose 11 per cent to $6.7 billion. Excluding one-off items, the result was in the lower end of analysts’ range of forecasts.
CCS earnings strip out the impact from changes in the value of fuel inventories, and the figure is comparable to U.S. oil companies’ net income.
The rise in Shell’s profits was driven by its core upstream oil and gas production division.
Following a trend seen at Shell and peers such as BP PLC in recent years, the Anglo-Dutch company needed the big jump in oil prices to make up for a six-per-cent drop in oil and gas production and a rise of more than 10 per cent in costs.
“(The results) will do little to assuage concerns that large integrateds are unable to capture record prices,” Peter Hutton at NCB brokers said in a note to clients.
Analysts at JP Morgan said earlier this month that the oil majors need prices above $85 per barrel to sustain earnings growth.
U.S. crude prices averaged more than $90 per barrel in the final quarter of 2007, before hitting a record $100-plus in January.
Shell’s production was hit by the reduction of its stake in the Sakhalin gas project in Russia following government pressure, and technical problems at a unit in Canada that squeezes crude from bitumen-drenched sands.
Shell retreated from targets to expand production in coming years, with chief financial officer Peter Voser refusing to restate a plan for one- to two per-cent growth to 2010 and saying output was likely to fall “slightly” in 2008.
Shell will have to pay more to achieve even this modest aim, with capital expenditure for 2008 now seen growing around seven per cent to $28 billion-to-$29 billion after a 15 per-cent rise in 2007.
Although analysts had expected a capex rise, James Neale, oil analyst at Citgroup, said investors may wonder what they are getting in return for the higher spending.
Shell’s London-listed ‘A’ shares closed up 0.11 per cent $35.66, lagging a 0.7-per-cent rise in the DJ Stoxx European oil and gas sector index.
…this post forwarded by Windsor Humanist, Alexander Neil, after a February 2, 2008 article by Tom Bergin in Reuters
The three biggest U.S. oil companies netted almost $10 million an hour combined in the fourth quarter.
The three biggest U.S. oil companies netted almost $10 million an hour combined in the fourth quarter. Houston-based Conoco-Phillips, the No. 3 U.S. producer, last week said its profit climbed by 37 per cent to $4.37 billion.
Chevron said additions to reserves last year replaced only about 10 per cent to 15 per cent of the oil and natural gas it produced. The impact of high crude prices on productionsharing contracts with host countries cut Chevron’s reserve-replacement ratio by about 30 percentage points, Chief Financial Officer Steve Crowe told investors on a conference call.
“Exxon and all of the integrated oil companies are growth-challenged,” said Brian Youngberg, an analyst at Edward Jones in Des Peres, Missouri. “The rise of nationalism means countries are saying, ‘Maybe we don’t need to share as much with the major oil companies.’ ”
Exxon Mobil said about 20 per cent of its output is governed by production-sharing agreements with countries.
Soaring profits for oil companies amid growing concern about an economic slowdown may revive efforts in the U.S. Congress to strip the industry of some of its earning power, said Douglas Ober at Adams Express Co. in Baltimore. Democratic lawmakers seized on today’s profit reports to criticize President George W. Bush and his Republican allies.
“While the oil companies are turning the American consumer upside down at the pump, shaking out every last cent, the White House is defending unnecessary giveaways and tax breaks to big oil,” Representative Edward Markey, a Massachusetts Democrat who heads the House select committee on energy independence and global warming, said in an e-mailed statement.
Fourth-quarter earnings rose even as gasoline and diesel failed to keep pace with the surge in oil prices, narrowing profit margins on fuels made from crude.
Analysts are predicting slower profit growth this year for major oil producers. Oil futures have fallen almost 10 per cent from their record high of $100.09 a barrel reached on Jan. 3, dropping amid concern over a possible U.S. recession.
“Oil is due for a correction in a slowing economy,” Mr. Goodof said.
…this post forwarded by Windsor Humanist, Alexander Neil, after a February 2, 2008 article by Joe Carroll in Bloomberg