THE SUNDAY TELEGRAPH: Shell and BP make profits of $50m a day: "BP and Shell, the giant oil companies, are this week both expected to announce record profits of around $4.5 billion (£2.5 billion) each for the three months to September as they reap the benefits of the soaring oil price." (ShellNews.net)
By Sylvia Pfeifer (Filed: 24/10/2004)
BP and Shell, the giant oil companies, are this week both expected to announce record profits of around $4.5 billion (£2.5 billion) each for the three months to September as they reap the benefits of the soaring oil price.
The figure equates to a staggering profit of about $50m per day.
Industry profits are forecast to be up 50 percent on last year
The price of crude oil has hit new records in the third quarter of this year on the back of strong demand, especially from China, and fears about supply.
The average price of Brent crude during the quarter was $41 a barrel, $12.70 above the price during the third quarter of last year. On Friday the oil price in New York reached a new peak of $55.45 a barrel, while in London Brent crude closed at $51.32 a barrel.
As a result, analysts are forecasting third quarter profits for the industry that are on average 50 per cent higher than in the same quarter last year. BP, which announces its results on Tuesday, is expected to report profits of close to $4.4bn, up from $2.9bn in the third quarter last year.
BP's profits will have been bolstered by strong production from Russia, although its bottom line is expected to be hit by tax charges from the country. A $500m environmental provision could also marr its bumper results.
Its main rival, Royal Dutch/Shell is expected to overtake BP for the first time in more than a year, with analysts forecasting profits of up to $4.7 billion, up from the $2.6 billion it reported last year.
The high oil price has allowed companies to hike their development spending on exploration and production projects. An analysis of the 10 largest quoted Western oil and gas companies published by Wood Mackenzie, the Edinburgh-based consultancy, earlier this month revealed that development expenditure on upstream projects rose from an aggregate of about £19.32 billion in 1998 to £29.6 5 billion last year.
The increased spend will also translate into an upturn in production, said the report.
"We expect production from the top 10 companies, which account for 20 per cent of the world's oil production, to increase on average by 3.5 per cent a year between 2003 and 2008 . . . an increase of 4. m barrels of oil equivalent per day over the period in question."
BP and Shell have both committed themselves to buying back shares in a bid to pass on some of their bumper profits to investors. BP announced in March that it would buy $33 billion of shares if the oil price stayed above $30 over the next three years. Shell followed suit in April when it announced that it would buy back $2 billion of its shares before the end of the year.
The high oil price has, however, hit motorists. Prices are currently hovering around - and even exceeding - the £3.86 a gallon (85p a litre) levels seen at the time of the fuel protests in 2000.
With some analysts forecasting that the oil price could hit $60 a barrel, this could push pump prices towards the £4 a gallon mark.