Thursday, May 1, 2008

Record oil prices

Record oil prices fuel Shell profit


LONDON — Royal Dutch Shell PLC beat all forecasts on Tuesday with a 12 per cent rise in first-quarter current cost of supply (CCS) net income, helped by record oil prices which broke $100 (U.S.) a barrel in the period.

Excluding non-operating items, which amounted to a net charge of $77-million, the CCS result, which strips out the impact of changes in the value of fuel inventories, was $7.85-billion.

A Reuters poll of 11 analysts gave an average forecast of $6.84-billion for Shell's first quarter CCS earnings, excluding non-operating items. The highest forecast was $6.99-billion.

“They look like blow-away numbers. Surprising across all divisions at this time,” said Jason Kenney, analyst at ING. “I can't see anything in particular that is unusual, they've just done well.”

Shell and other oil companies are benefiting from surging oil prices, which topped $100 a barrel in January and have since climbed towards $120. Earnings at Shell's rival BP PLC also beat forecasts.

The Hague-based Shell delivered a surprise for investors with a small boost in output.

It said production averaged 3.52 million barrels of oil equivalent per day (boepd) in the first three months of the year, compared with 3.51 million boepd in the same period last year.

Analysts had predicted output would fall to 3.40 million boepd.

“The real positive is the upstream, both on the volumes and on the profitability,” said Herman Bots, analyst at Theodoor Gilissen.

Shell chief executive Jeroen van der Veer said the company's results were “competitive” and its strategy was on track.

“Shell has the largest capital spending program in our industry today, to grow the company and play our part in ensuring that energy markets remain well supplied,” he said in a statement.

After five years of falling production, the world's second-largest non-government-controlled oil company by market capitalization has been struggling to expand output.

Output is in decline at some aging fields and access to big sources of new reserves is becoming harder. Oil fields in some of the largest reserve holders are off limits to foreign oil companies.

Refining and fuel marketing profits fell 20 per cent due to an industry-wide collapse in crude processing margins, although the result was better than analysts had expected.

Shell said a refund of royalty payments helped boost profits at its oil sands division, which squeezes crude from bitumen-drenched soil in Canada, where many analysts had expected earnings to fall due to lower production.

Petrocan profit tops $1-billion

JOHN PARTRIDGE, Globe and Mail Update

Energy producer Petro-Canada has exceeded expectations by reporting a more than 80 per cent year-over-year jump in first-quarter profit, buoyed by surging oil prices and increased upstream production by its international division.

The Calgary company said Tuesday that it put $1.07-billion or $2.22 a share on the bottom line in the first three months of 2008, compared with $590-million or $1.19 a year earlier.

Petrocan distilled this from revenue that soared to $6.58-billion from $4.84-billion in the first quarter of 2007.

The revenue gains were driven by a jump in oil and gas production to an average of 427,000 barrels of oil a day, up from 405,000 a year earlier, combined with a 68 per cent surge in its average Canadian-dollar price for crude oil to $93.38 a barrel. For North American natural gas, the climb was a more sedate 2 per cent, to $7.51 per thousand cubic feet.

Petrocan said operating profit for the quarter came in at $899-million or $1.86 a share, up from $580-million or $1.17, while cash flow from operations before changes in non-cash working capital was $1.85-billion or $3.83 a share, compared with $1.16-billion or $2.35.

This handily beat the average forecast by analysts, which had pegged operating profit at $1.62.

“We're off to a good start for the year, with excellent first quarter earnings,” Petrocan chief executive officer Ron Brenneman said in a news release.

Analyst Andrew Potter at UBS Securities Canada Inc., who has a “buy” recommendation on Petrocan shares, agreed. He headlined a note to clients on the results: “Firing on all cylinders for a stellar Q1.”

Upstream production totalled the equivalent of 427,000 barrels of oil a day, up from 405,000 a year earlier. Gains in the company's international segment were partly offset by lower volumes from its oil sands and East Coast Canada and North American natural gas operations.

By contrast, Petrocan said downstream petroleum sales volumes slipped to 52,200 cubic metres a day from 53,000 and downstream after-tax profit plunged to 1.2 cents a litre from 3.8 cents.

Profit for the company's North American natural gas business was $74-million, down from $112-million, as the company took a $24-million after-tax charge for accumulated project development costs on its proposed but now postponed liquid natural gas re-gasification facility in Quebec.

Excluding this, natural gas delivered $96-million in operating profit, up from $72-million, while cash flow from operations was $264-million, compared with $197-million.

Petrocan's oil sands operations generated an operating profit of $110-million, compared with $43-million, and cash flow from operations climbed to $168-million from $115-million.

However, production slipped to an average of 55,000 barrels a day from 59,700 a year earlier, due to a combination of severe winter weather and preventive maintenance and repairs, Petro-Canada said.

The company's East Coast Canada operations saw operating profit leap to $344-million from $256-million a year earlier as a result of higher realized prices, although production slipped to an average of 92,100 barrels a day from 97,300. The most recent figure also included $29-million in insurance proceeds related to Terra Nova, the company said.

International, meanwhile, reported an operating profit of $336-million, compared with just $64-million a year earlier, when the company faced the costs of a well “workover” in the North Sea, as well as an unrealized loss of $60-million on derivative contracts.

As for Petrocan's downstream businesses, their operating profit fell to $58-million in the quarter from $183-million.

The contribution from marketing operations was flat at $49-million, but the contribution from refining and supply plunged to just $9-million from $134-million a year earlier.

The company attributed this to lower margins on gasoline cracking, lubricants and petrochemical and asphalt products, along with higher operating costs and a negative impact from foreign exchange.

The New York Harbour crack spread, it said by way of example, fell by 28 per cent to an average of $8.06 (U.S.) a barrel.

Record prices carry BP profit higher

TOM BERGIN, The Associated Press

LONDON — BP PLC on Tuesday reported a 63 per cent jump in profit in the first quarter with the per-barrel price of oil hovering well above $100 (U.S.).

The oil company reported a profit of $7.6-billion compared with $4.4-billion in the first quarter of 2007.

First-quarter profit rose 73 per cent compared with the previous quarter.

“At last, it appears that BP is beginning to improve its operational performance and this looks set to drive a stronger financial performance in the second half,” said Tony Shephard, analyst at Charles Stanley & Co.

BP's closely watched replacement cost profit rose 48 per cent to $6.59-billion, compared with $4.44-billion in the first quarter of 2007.

The replacement cost figure is viewed by many analysts as the best measure of an oil company's underlying performance because it excludes changes in the value of crude inventories, measuring the amount it would cost to replace assets at current prices.

BP shares rose 3.8 per cent to 600.5 pence.

Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers, said BP had reported “an exceptional set of numbers” that were well ahead of forecasts.

“Although this should not come as a complete surprise, given historically high energy prices, management have been battling against a series of operational difficulties and the results may indicate that challenges are being won,” Mr. Bowman said.

“Management are attempting to play down early investor enthusiasm, highlighting a number of one-off exceptional items which have aided performance,” Mr. Bowman added. “However, even excluding one-off successes, investors will take great confidence from what looks to be a marked turnaround in performance.”

Mr. Shephard said BP's recovery had some way to go. “BP is still not firing on all cylinders but its operational turnaround looks to be on track with a strong second half recovery in prospect,” he said.

The benefit from the recommissioning of the Whiting, Indiana and Texas City refineries in the United States would be more apparent in the second half, he said.

Nexen Q1 profit jumps 421%

The Canadian Press

CALGARY — — Nexen Inc.'s first quarter earnings jumped 421 per cent to $630-million on strong production and high commodity prices, leading the company to double its quarterly dividend to five cents per share.

The Calgary-based firm's earnings amounted to $1.19 per share and compared to a profit of $121-million, or 23 cents per share, in 2007.

Sales rose to $1.87-billion from $1.14-billion in the same quarter last year.

The company said the dividend would be payable July 1, to shareholders of record on June 10.

Quarterly production before royalties was 267,000 barrels of oil equivalent per day, up 12 per cent over the first quarter of 2007, and on track to meet annual production guidance, Nexen said.

Production was boosted by strong oil and gas production from the company's Buzzard field in the North Sea,whcih more than offset production outages at its Syncrude project.

Nexen has operations in the North Sea, Western Canada and the Gulf of Mexico, as well as offshore projects in West Africa and the Middle East.

BG unveils 70% profit rise

Oil and gas explorer BG Group became the latest beneficiary of soaring prices today after unveiling first-quarter profits of £1.4bn.

The 70% hike was mainly due to "higher commodity prices" and increased production levels in a "excellent start" to 2008, the company said.

The results come a day after oil giants Royal Dutch Shell and BP posted combined profits of £7.2bn for first three months of the year, angering motorists.

The glut of profits has been fuelled by a record run for oil prices peaking at almost $120 a barrel this week.

This has been driven by supply concerns following attacks on pipelines in Nigeria, as well as traders looking to buy oil to hedge against a weakening dollar as the US economy struggles.

But the huge earnings will strike a raw nerve with households hit by price hikes from the UK's "big six" energy firms, who racked up bills within a few weeks of each other earlier this year. The move prompted the Office of Fair Trading to launch an investigation in February.

BG's exploration and production division saw profits rise 50% to £942m on the surging oil prices, aided by higher production from the UK's Buzzard field and its interests in India.

The group's liquefied natural gas (LNG) businesses were meanwhile bolstered by rising international gas prices which helped treble earnings to £383m.

Chief executive Frank Chapman said: "BG Group has made an excellent start to the year driven by increased production volumes, higher commodity prices and strong first-quarter performance in LNG."

BG also has a 30% stake in the the consortium buoyed by the recent discovery of what could be the world third's biggest oil field off the coast of Brazil.

Shares in the firm soared earlier this month after the head of Brazil's national oil agency said the Carioca field in the Santos Basin could hold reserves of around 33bn barrels of oil.