Oil prices fall to cut profits at UK majors
Lower oil and gas prices and poor refining performance are set to hit third quarter profits at oil and gas majors BP, Royal Dutch Shell and BG Group this week.
Falls in oil prices to about $80 (£49) a barrel last week, from an all-time high of $147 a barrel in July in 2008, are likely to slash the profits of oil firms by more than half of what they were last time, analysts say.
Poor refining margins is also set to knock earnings, with refineries struggling due to weak demand and the rising cost of oil.
Analysts expect BP to post quarterly net profits of around $3.2bn tomorrow, down 64 per cent from $8.9bn beforehand.
“Although oil prices have been recovering for most of the year, gas prices remain depressed and refining margins have gone from bad to worse,” Tony Shepard of stockbroker Charles Stanley said in a research note on BP.
BP is nevertheless tipped to please the market with its operational performance due to volume growth in its exploration and production business and oil finds in the Gulf of Mexico and offshore West Africa.
On Thursday, Shell should report net income of $2.5bn, 69 per cent lower than the $8.1bn it notched up last time.
Analysts at Citigroup said the figures would reveal “another operationally challenging quarter for Shell”, with flat production volumes and sharply lower refining profits.
They added, however, that the market was taking a balanced view.
“As we move into the period post-results, newsflow may begin to improve,” Citigroup said in a note.
Shell may also give an update on its Transition 2009 programme, which is aimed at cutting costs across its operations and may result in “substantial” job cuts this year.
On Wednesday, gas explorer BG is set to unveil a 40 per cent fall in third quarter earnings to £463m due to lower gas prices, offset by higher production.
Citigroup said BG’s power division was likely to be a focus of questions after reports suggested the firm may sell large parts of it.