- Title: UK/FILE: Shell, BP profits jump on record oil price
- Date: 29th April 2008
- Summary: WIDE OF SHELL PETROL STATION VARIOUS OF SHELL LOGO PEOPLE FILLING UP CARS AT SHELL STATION
- Embargoed: 14th May 2008 13:00
- Topics: Industry
- Reuters ID: LVA90EN0JMYXJGRIWYFIPZWYAMPR
- Story Text: Oil giants Royal Dutch Shell and BP beat forecasts with big rises in first-quarter profits on Tuesday (April 29), lifting shares across the sector, as investors bet oil prices above $100/barrel would be an even bigger bonanza for the industry than expected.
Shell, the world's No. 2 non government-controlled oil company by market capitalisation, said net income, excluding unrealised gains from changes in inventory values, rose 12 percent to a record $7.8 billion.
Industry No. 3 BP said profits, calculated on the same basis, rose 48 percent to $6.6 billion. Excluding one-off items, both companies outperformed analysts' forecasts by over $1 billion.
"I think they deserve, full, wholesome congratulations. Both BP and Shell have gone through very, very difficult times for a variety of different reasons. Now we have a situation where they are still taking out costs but what we have got is a basis of profitability from where we can move forward. Now, that huge gain, the vast majority of it has come from the rising price of oil. They have benefited but they need to do that, they need to make these profits to invest in the future and the future is looking very, very uncertain for all of us in terms of energy supply, " Howard Wheeldon, an oil analyst from BGG partners said.
Shell's London-listed "B" shares rose 5.41 percent to 2027 pence by 1336 GMT, while BP's rose 4.9 percent to 607 pence.
The DJ Stoxx European oil and gas sector index rose 1.75 percent, compared to a 0.53 percent drop in the FTSEurofirst 300 index of top European shares.
The oil majors' core upstream, oil and gas production units were the main drivers of the bumper profits, thanks to oil prices which averaged almost 100 US dollars/barrel during the quarter, and strong gas prices in the U.S.
Oil and gas production was flat at both companies, reflecting resource-holders' growing use of production-sharing contracts under which companies receive fewer barrels from a project if prices rise. Analysts had expected a drop at Shell.
Refining profits held up better than expected despite high crude prices putting pressure on margins, and retail earnings rose as the companies found it easier than anticipated to pass high prices onto motorists.
BP and Shell also called volatile energy markets right, making higher profits from trading cargos and derivatives.
BP said its trading profits were about 400 million US dollars higher than during a typical quarter. Shell did not disclose its trading profits but Chief Financial Officer Peter Voser said they had risen.
Despite the run-up in oil prices, which hit a new high of almost $120/ barrel this week, investors have been slow to reward oil stocks, amid fears of rising costs and taxes, stagnant or falling production and a dearth of new oil finds.
Analysts said the results showed Shell and BP were delivering on their respective turnaround strategies.
However, analysts caution that there is much that remains to be done by oil companies which will have to make major investments.
"They must invest wherever they can find the best solutions to what we all need. So it isn't just about replacement reserves for oil and gas.
It is looking forward to how they can play their part in the whole climate change argument, in the whole environmental problem we will face in the future and of course the rising demand for energy and where that's going to come from with oil coming on stream at a much lower rate than it has ever done before," Wheeldon said.
Both BP and Shell have struggled with falling production in recent years as sloppy project management led to delays and cost overruns on key projects such as Shell's Sakhalin-2 fields in Russia and BP's Thunder Horse platform in the Gulf of Mexico.
Oil companies have had to seek new areas for growth as mature fields decline, new discoveries in their traditional hubs become scarcer and the richest reserves in the Middle East, Latin America and Russia remain off limits to foreign companies.
One such new area is Canada's oil sands. Analysts have questioned whether Shell, and BP, a more recent entrant to the business, can make money squeezing crude from Alberta's bitumen-soaked soil as costs there soar.
However, a big rise in profits at Shell's oil sands unit, despite lower output due to technical glitches, affirmed the business's economics in a high oil price environment.
While governments across the globe are taking more of the oil price upside for themselves, Canada's tax rates allow companies to retain considerable exposure to price rises.
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