Oil companies see big falls in profits

Royal Dutch Shell and Exxon Mobil have both reported a big fall in quarterly profits, due to the sharp decline in oil prices since mid-2008.

April-to-June profits at Anglo-Dutch group Shell slumped 70% from a year earlier, to $2.3bn (£1.4bn).

Exxon’s profits for the same period declined 66% to $3.95bn.

Global crude prices hit a record $147 a barrel last year, before falling back as the world recession took hold. US light crude is currently about $64.

Shell’s sales for the quarter totalled $63.9bn, down 51% on a year earlier, while Exxon’s declined 46% to $74.5bn.

Cost cutting

Looking ahead, Shell’s chief executive Peter Voser said global demand for oil remained “weak”.

“There is ample supply and not enough demand. Quite a turnaround from a year ago.

“Shell is adapting to this new situation, and we must do more. We are sharpening our focus on delivery and affordability,” he said.

The company said it would continue to cut costs after achieving savings of $700m in the first half of 2009. It said it had now trimmed 20% of senior management positions.

Despite the fall in profits, Shell said it would be maintaining its dividend to $0.42 per share, an increase of 5% from a year ago.

Oil analyst Nick McGregor of Redmayne Bentley, told the BBC that the only disappointment from Shell’s results was the fact its crude production was down 6% from a year earlier.

“Production figures are closely watched, and I think this fall was down to external factors, such as Shell’s Nigerian output being cut [due to the attacks on oil facilities in the country],” he said.

“It simply means Shell hasn’t been able to pump as much oil as it would like, which contrasts with BP’s figures earlier in the week, as BP’s production was up.”

‘No quick recovery’

Exxon said its quarterly crude production was down 3% from a year earlier, and that weak oil demand remained.

“Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products,” said Exxon chairman and chief executive Rex Tillerson.

World oil prices fell back from record highs last summer as the global economic bubble burst, and the recession took hold, sparked by the crisis in the credit markets.

Crude prices fell as low as $30 a barrel at the start of the year, but have since recovered to around the $63 level.

Shell’s profits are reported under the current cost of supply basis. Excluding one-off items, including reduced staff healthcare costs in the US, its latest quarterly profits totalled $3.2bn, ahead of market expectations.

“Conditions are likely to remain challenging for some time, and we are not banking on a quick recovery,” added Mr Voser.

He said he was planning on the basis that “this downturn could last quite some time.”

Shell and Exxon’s results come two days after fellow oil giant BP also reported a big fall in profits.

Source: BBC