A sampling of major international oil and gas companies' yearend 2000 earnings showed dramatic year-over-year gains.
Royal/Dutch Shell Group reported record full-year adjusted current cost of supply (CCS) earnings of $13.1 billion, as the group's profits surged 85% on the back of high oil and natural gas prices and "much improved" refining margins.
BP unveiled pro forma 2000 profits of $14.2 billion, more than double its result for the previous year.
Norsk Hydro AS, meanwhile, reported net income of 14 billion kroner in 2000. President and CEO Egil Myklebust credited "a combination of the rapid implementation of [a restructuring] strategy started in 1999, internal improvement programs, plus market conditions" for the record profits, which were up from 3.4 billion in 1999.
Royal/Dutch Shell
Shell's exploration and production division's earnings led the charge, contributing $9.26 billion-more than double the figure for 1999. The group's oil products business earned $2.48 billion, up 62% on the year before, while downstream gas and power provided earnings of $462 million, triple those of 1999.
Only the group's chemicals division showed a drop in earnings, down 8% to $752 million, a fact Chairman Mark Moody-Stuart explained as the result of lower unit margins.
He acknowledged the boost to group profits provided by high oil prices in 2000, but underscored that cost improvements of some $4 billion across all of its business units-an annual target revised upward to $5 billion last December-had been "a significant contributor to the increased earnings" for 2000.
"Yes, the oil price has helped in our upstream results, but much more important is that the efforts of the last 2 years have produced a powerful underlying improvement in performance," he said.
The $4 billion in cost improvements last year came from reductions of $1.94 billion in E&P, $1.4 billion from oil products, more than $500 million from the group's chemicals division, and a combined $130 million from its other businesses.
In the last year, Moody-Stuart stressed, Shell had "practically completed" a wholesale restructuring of its portfolios started in 1998, which included the sale of more than $14 billion in assets as part of plans designed to focus the group on its "real areas of strengths."
Shell's return on average capital employed (ROACE) climbed to 19.5% from 12.1% in 1999. Moody-Stuart said that more telling of the group's financial progress was that, at 14.2%, its "normalized" ROACE-a figure that "strips out market forces" and the effect of high oil and gas prices-exceeded the target of 14% at an oil price of $14/bbl set out in 1998.
BP
BP Chief Executive Sir John Browne stressed that the record profits-up from $6.2 billion in 1999-were "not just about oil prices, but about the success of [its] mergers in 2000 [with ARCO, Amoco Corp., and Burmah Castrol PLC]."
"The strong trading environment, together with the benefits of recent integration and restructuring and productivity improvements, has produced an outstanding worldwide result," he said.
The E&P segment contributed $15.7 billion to BP's bottom line, aided by high oil and gas prices, the "contribution from ARCO," and lower operating costs.
BP's refining and marketing business turned in profits of more than $4.9 billion in 2000 due to higher refining margins, among other factors, but its gas and power division's profits, at $186 million, were down slightly from 1999, when it brought in $211 million. Its chemicals business result for 2000, at just over $1 billion, was up fractionally.
BP lost some $1.1 billion year-on-year to its Other Businesses and Corporate division, which covers interests including the group's finance, BP Solar, coal and aluminum assets, and its investments in PetroChina and Sinopec.
"We are optimistic about the long-term future demand for oil and gas," noted Browne. "In fact, we think oil demand over the next 10 years will be equal to total consumption in the first 5 decades of the last century."
Plans to boost production from new developments to generate some 1.3 million b/d by 2005 depending to a substantial degree on BP's US deepwater Gulf of Mexico portfolio, including the 1-billion bbl Crazy Horse field and the recently discovered Crazy Horse North field (see Newsletter, p. 9).
Brown also highlighted BP's recently discovered Paladio field off Angola and Red Mango field off Trinidad as likely production "giants" in the coming years.
Browne said that 2000 had been "a great year for exploration," with the company increasing its proven reserves from 13.7 billion boe to 15.2 billion boe. Over the year, he said, the company replaced 160% of its production, booking 1.78 billion boe.
Browne said BP's strategy was "unchanged" from that spelled out to investors last July. The company, he said, in the process of "blending" the portfolio acquired through the various mergers of 2000, had trimmed some $4.9 billion out of the company costs. "There will more [cost reductions] in 2001 and 2002," he added.
Norsk Hydro
Hydro's oil and energy business turned in an operating income of 21.8 billion kroner for 2000, roughly triple that of the previous year. The sharp improvement, said Myklebust, was due to "considerably higher" oil and gas prices, a high dollar rate, and a production volume that was 21% greater than in 1999.
Hydro's reserves at the turn of the year were 2.04 billion boe. Factoring in the sale, purchase, and exchange of reserves over the course of the year, said Hydro, this translates into a net reserve replacement equivalent to 111%.
Myklebust said, "Hydro's financial position has been lifted in the course of 2000 to a level which is markedly more robust than it was prior to the acquisition of Saga as a result of the solid results and the sale of operations outside of our core areas."
