It looks like the tide has changed for the oil companies. Yesterday BP revealed its third quarter results, and they appeared to indicate a company standing at the turning point in the oil cycle.
Profits were up by 58 percent, but only because of asset disposals. Strip these out of the equation, and it was a different story, with BP’s CEO Lord Browne saying: “The outlook is for a rather different set of market circumstances - a more difficult trading environment…no one should expect that the absolute levels of performance, which we have recently seen, will be sustained. ”
BP’s replacement profit actually came in at $7 billion, compared to just $4.4 billion in the same quarter last year. BP did not publish the underlying profit, and analysts were left to work that out for themselves. But the consensus was that the underlying figure was around $4.65 billion, less than the estimate for last year. BP’s profit attributable to shareholders came in at $6.23 million a tad lower than a year ago.
The company has been beset with problems. It’s still paying the cost of the 2005 hurricanes, which caused its Thunder Horse refinery platform to wilt, and as yet the cost of replacing some of the parts is still unknown.
Then there’s the corrosion of pipes in Prudhoe Bay, Alaska, which led to the company shutting down the eastern part of the field, costing 27,000 barrels per day, averaged over the quarter.
BP’s oil output is down too, with Lord Browne saying: “Shorter term, annual production for ‘06 is expected to average around 3.95 million barrels of oil equivalent per day, down from the level of 4.014 in ‘05″. He did say, however, that the company expected the price of oil to remain above $40 a barrel in the medium term.
What with allegations of improper trading in the US, and compensation claims relating to the Fire in Texas when 15 people died, it’s been a troubled few months for the company, and some say that with Lord Browne due to retire in 2008, it’s beginning to spoil his legacy.
But then there are pastures new. Lord Browne said: “In Solar, we commissioned the first 25-MW cell line expansion at our Madrid facility. In Wind, we concluded the Greenlight transaction that provided a 4500-MW development portfolio. In Hydrogen power, our joint venture with GE is starting to take shape. In gas-fired power, we began commercial operations at the second unit of our 1.1-GW K-Power combined cycle gas turbine project in South Korea, and broke ground on our 250-MW Texas City steam turbine project. ”
But what about Shell. Speculation is rife that BP and Royal Dutch Shell are planning to merge. And to that, the company’s CEO sounded a little like Francis Urquhart from the TV series House of cards when he said: “I am aware that many people are talking about it but I have no comment to make.” But then he waved a red flag to the bulls, when he said: “Even the biggest companies have small market shares. Looking at it from 50,000 feet you’d have to say there’s an awful lot of players dealing with very small pieces of an industry which probably in the fullness of time will change shape.”
For further information
BP Third Quarter 2006 ResultsBP
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