Lower oil and gas prices reduced profits and slowed third quarter exploration and production efforts for international integrated oil companies, but the firms also noted that higher gas sale volumes have helped offset the impact of sliding oil prices.
Oil prices have softened in the face of weakening demand, particularly for aviation fuel, in the wake of the Sept. 11 terrorist attacks on the US.
BP Group CEO John Browne said the immediate outlook for oil prices hinges upon the Organization of Petroleum Exporting Countries' ability to secure production cuts.
"The critical issue, as we look forward, is whether OPEC will curb that output sufficiently to pull the crude price back within its target range," Browne said.
"US natural gas prices have settled at more normal levels, though we should expect the usual seasonal variations. Refining marginsellipseshow big regional differences but, overall, are likely to be down on last year because of lower product demand," he said.
Meanwhile, retail margins have benefited recently from falling product prices, but chemicals margins are likely to "stay pretty flat due to weakening demand and excess capacity," Browne said.
BP
BP blamed lower commodity prices for lower third quarter results compared with a year ago.
Third quarter adjusted earnings fell 20% to $3.05 billion from $3.80 billion for the same quarter last year. For the 9 months, BP reported a record $10.9 billion compared with $10.1 billion for the same period last year.
The quarter's oil and gas production increased by around 3% from a year ago, with natural gas up 8%, and liquids down slightly.
"Crude oil production from the deepwater Gulf of Mexico increased by 25% as new capacity continues to be added. The increase in natural gas resulted from strong output growth in our joint venture in Argentina, up 40%, and in North America, up 6%," said BP.
"Average BP liquids realizations declined by 17% to $23.08/bbl, and natural gas realizations averaged $2.49/ Mcf, down 17%. Higher volumes, continued productivity driven cost savings, and lower exploration expense provided some offset to this adverse price effect," the company said.
In the refining and marketing segment, the results reflected higher marketing volumes than the same quarter a year ago. The company said the overall trading environment was similar to third quarter 2000, "with lower refining margins offset by improvements in retail margins."
The quarterly pro forma operating result for the refining and marketing segment, adjusted for special items, was $1.29 billion, up slightly from third quarter 2000's $1.26 billion.
Royal Dutch/Shell
The Royal Dutch/Shell Group has reported record earnings for the first 9 months of this year of $10.08 billion, but third quarter adjusted earnings, on a current cost of supplies basis, were $2.69 billion, 17% lower than in the same period last year.
The quarterly figures halted the rise in Shell's profits, which began in early 1999. Executives said the main reason was slumping oil prices. Brent crude prices averaged $25.30/bbl in the third quarter compared with $30.45/bbl a year ago, while WTI crude averaged $26.65/bbl compared with $31.70/bbl a year ago.
Philip Watts, chairman of the committee of managing directors, pointed to the impact of a "weaker overall business environment" with lower oil and gas prices along with lower refining and chemical margins.
Nevertheless, Shell's operations still demonstrated robust profitability and growth, he said.
"We invested $2.4 billion in the quarter and produced a return on average capital employed of 21% over 12 months, compared with 17% a year ago," Watts said.
"Total hydrocarbon production was up 5% compared with last year and liquefied natural gas volumes were higher by 15%. At the same time, following the recent agreement with ChevronTexaco Corp., the oil products business is establishing a further major growth platform and is set to become the leading gasoline retailer in the US," he said.
Shell has agreed to increase its ownership stake to 100% interest in Equilon Enterprises LLC and to 50% interest in Motiva Enterprises LLC.
"Additionally, we continued to show our expertise in technology and project management. Last month, Shell inaugurated the Malampaya deepwater gas facility in the Philippines. It came in on schedule and on budget. In the summer we commissioned the Brutus deepwater platform in the Gulf of Mexico; this project came in ahead of schedule and under budget."
Watts concluded, "We believe the figures are very encouraging in the light of current trading conditions and the continued uncertainty in the world economy. Delivering industry-leading performance in terms of cash to shareholders reflects the robustness of our portfolio and cost base. I remain confident we will achieve consistently strong results from what is a world class business."
Shell managed to outperform ExxonMobil Corp., which reported a 23% fall in third quarter earnings earlier this month, and Chevron Corp., whose profits dropped 24% (see related article, p. 22).
The dropping oil price reduced Shell's earnings from exploration and production by 24% to $1.7 billion during the quarter while its oil products added 3% to $799 million. Chemicals continued to reflect the impact of weak markets with lower earnings. Oil production fell 3% while gas production increased 24%.
Statoil
A reduction of 16% in oil prices and weaker downstream earnings were offset by Statoil's 57% increase in gas sales, higher gas prices, and other financial gains.
The company reported a net income of 4.1 billion kroner ($453 million) or 1.88 kroner/share (21¢/share), for the third quarter of 2001, which was in line with financial institutions' expectations.
Net income for the first 9 months was 14.6 billion kroner, or 7.15 kroner/share, an increase of 28% from the same period of 2000.
Statoil President and CEO Olav Fjell said, "Despite reduced prices and margins for our main products, the underlying results are sound. Planned cost reductions and restructuring are on schedule. Our production performance is good, allowing us to increase our forecast for the year to 985,000 boe/d. Results so far this year confirm that we are on schedule to reach the goals for results and growth communicated during our initial public offering in June."
Oil and gas production averaged 999,000 boe/d during the third quarter, an increase of 11% from the same period of last year. Production for the first 9 months averaged 981,000 boe/d, up 2% on 2000.
All field developments included in Statoil's production target of 1.12 million boe/d for 2004 have now been sanctioned. These include the development and operation of Snøhvit, which will be the first offshore development in the Barents Sea and the first project in Europe to be based on exports of liquefied natural gas.
The Norwegian Gas Negotiating Committee has signed an agreement with the Polish state oil and gas company to supply Norwegian gas. The agreement means that Poland will receive 74 billion cu m of gas over a period of 16 years, starting in 2008. Statoil and the Norwegian state's combined share of the contract is 66.8%.
Gas deliveries started Oct. 1 to Italy and the UK. Statoil and the Norwegian state will deliver 100 billion cu m of gas to Italy by 2025. To the UK, Statoil and the state, under an agreement with BP, will deliver 1.6 billion cu m of gas every year until 2016.
E&P Norway earned a third-quarter profit of 1.3 billion kroner, a decline of 11% from the same period last year. This reduction was mainly attributable to a 16% fall in oil prices, higher exploration costs, and increased depreciation owing to the rise in production.
Fifteen exploration and appraisal wells have been drilled so far this year, resulting in 10 finds. Statoil operates 10 of the wells. Volumes sold during the third quarter of 2001 were 926,000 boe/d, a 12% increase from the same period last year.
International E&P earned a third-quarter profit before financial items of 125 million kroner, down 125 million from the same period a year ago. That was attributed to a fall in oil prices and a 9% fall in third quarter production. Average daily oil and gas sales for the third quarter fell from 68,000 boe/d in 2000 to 62,000 boe/d in 2001 because three wells were shut down at Jupiter gas field in the UK.