Oil Industry Shows Signs of Improvement -- WSJ
November 02 2016 - 3:03AM
Dow Jones News
Shell and BP report quarterly profits as prices rise from lows;
a focus on cost cuts
By Sarah Kent and Selina Williams
LONDON -- Royal Dutch Shell PLC and BP PLC posted
better-than-expected third-quarter profits, joining other big oil
companies in showing progress in efforts to adapt to a world of
cheaper crude as prices rebounded from lows hit at the start of the
year.
The European companies' results underlined a sense of cautious
optimism creeping into the oil industry after more than two years
of falling profits or losses in a sector once known as a reliable
cash machine. BP and Shell both said they expect oil supply and
demand to come back into balance after being glutted long enough to
sink prices by more than 50%.
Both companies said they had made progress with efforts to
stabilize profits even during a third quarter when prices averaged
less than $46 a barrel.
"2015 and 2016 was about restoring balance," BP Chief Financial
Officer Brian Gilvary said on a call with analysts.
Shell returned to profit, posting the equivalent of $1.4 billion
in net income for the third quarter of 2016 after reporting a net
loss of $6.1 billion a year earlier. BP reported net earnings of
$1.7 billion for the most recent quarter, up 35% from $1.2 billion
a year earlier.
BP and Shell's results were a positive signal in a mixed season
of earnings. French oil company Total SA last week said its
third-quarter profit almost doubled from a year earlier to nearly
$2 billion, a gain the company's chief executive, Patrick Pouyanné,
attributed to deep cost cuts.
In the U.S., Chevron Corp. returned to the black after recording
losses for three straight quarters, aided by self-help measures to
cut spending and costs. Its earnings, however, were still down 35%
compared with the third quarter of 2015.
Exxon Mobil Corp., the world's largest publicly traded oil
producer, registered its eighth-straight quarter of year-over-year
profit decline, illustrating how the efforts to manage the price
downturn remain a work in progress.
Oil prices generally were lower in the third quarter of 2016
compared with the same time in 2015, averaging $45.86 a barrel for
Brent crude, the international benchmark. The prices are down more
than 50% from the heights of $100 a barrel or more they traded at
for much of 2011 to 2014. A global oversupply of oil has kept the
market depressed.
Most big oil companies are continuing to work to bring down
their costs in an uncertain price environment. Shell said next year
it expects to spend $25 billion on finding and developing new oil
and natural-gas projects, at the lower end of a spending range it
disclosed this year to investors.
BP said it planned capital spending in 2016 of $16 billion, down
from the $17 billion to $19 billion previously forecast. Exxon
slashed its capital and exploration spending 45% in the third
quarter from a year earlier.
Shell and BP's results were important landmarks for both
companies after a tumultuous few years. For Shell, the sharp
increase in profit marked a victory for management, demonstrating
for the first time the value the company's acquisition of BG Group
earlier this year could bring.
BP's results were the first unmarked by significant charges
related to the company's fatal blowout in the Gulf of Mexico in
2010. The company is trying to move on from the accident after
putting a final cost on the disaster of $61.6 billion over the
summer.
Any recovery could still be precarious as members of the
Organization of the Petroleum Exporting Countries are struggling to
hammer out a final plan for a modest output cut before a Nov. 30
meeting in Vienna. Their failure to agree is keeping a lid on oil
prices that staged a modest recovery last month, and optimism
within the industry remains cautious.
There are signs executives are more willing to consider new
investments.
BP is looking at advancing two new large oil and natural-gas
developments this year, taking the total number approved in 2016 to
five, Mr. Gilvary said.
Shell is more circumspect. Chief Financial Officer Simon Henry
said Tuesday that large new project approvals are "not top of my
list of priorities at the moment."
"We're planning next year on $50 a barrel. We're planning the
balance sheet for potentially even lower than that, and we're
building the portfolio to be robust at anything above $50 a
barrel," he said.
Write to Sarah Kent at sarah.kent@wsj.com and Selina Williams at
selina.williams@wsj.com
(END) Dow Jones Newswires
November 02, 2016 02:48 ET (06:48 GMT)
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