Royal Dutch Shell Group .com Investors to scrutinise oil giants` earnings: 5 top companies expected to report near-record quarterly earnings of $20 bn: “Shell has worried investors because it is committed to spending its way back to production growth through a $45 billion three-year capex spree, rather than promising share buybacks.” (


James Boxell & Doug Cameron / London October 26, 2004  


Investors will this week look for signs of intensifying exploration and development activity as the world’s five largest oil and gas companies report what analysts expect to be near-record quarterly earnings of close to $20 billion (€15.8 billion). 


Executives from ExxonMobil, BP, Royal Dutch/Shell, ChevronTexaco and ConocoPhillips are also expected to give details of more share buybacks, and face questions about political risks as development programmes focus on emerging markets. 


But with crude oil benchmark prices above $50 a barrel, analysts said the focus would be on capital discipline and increasing output from mature fields such as the North Sea and the Nigerian delta. 


“Work on these oil fields at this oil price is almost irresistible,” said Andrew Gould, chairman and chief executive officer of Schlumberger, the world’s largest oilfield service group by revenues. 


Exxon has led the way in capital discipline, with the big companies directing much of the free cash flow from oil prices back to shareholders rather than pouring it into investment. 


Art Smith, chairman of consultant John S Herold, estimates buybacks from big companies may exceed spending on exploration and development this year. 


Shell has worried investors because it is committed to spending its way back to production growth through a $45 billion three-year capex spree, rather than promising share buybacks. It also broke away from peers by saying it will assess whether to invest in projects based on a $25 oil price. The others have stuck at $20. 


Exxon is expected to lift buybacks from $2 billion to $3 billion, quarter over quarter, reaching $9 billion for the year, Chevron has restarted repurchases, and Goldman Sachs estimates BP could return $32 billion to shareholders between 2004 and 2006, equivalent to 15 per cent of its market value. 


The five companies reporting this week generated net profits of $19.6 billion in the three months to June 30. Analysts expect they will fall just short of this in the third quarter. 


Rapidly growing demand from countries such as China and India and supply fears have pushed prices higher and kept refining margins well above year-ago levels, while their chemicals operations are benefiting from a cyclical recovery. 


However, production at high-margin US and North Sea fields has suffered because of maintenance issues and the run of four hurricanes in the Gulf of Mexico. 


And analysts warn it is uncertain how far companies benefit from high crude prices in newer — non-Organisation for Economic Co-operation and Development — oil-producing regions because much of the excess is taxed away. 


Peter Nicol, ABNAmro analyst, said the $50 headline figures are misleading because they refer only to sought-after light crude from the North Sea and the US. 


“That $50 is not what most companies receive. A lot of their crudes are heavier and therefore less in demand and cheaper.” 

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