Two U.K. firms see profitability at $14/bbl

As Brent crude prices settle after the Organization of Petroleum Exporting Countries (OPEC) agreed to production cuts, British Petroleum Co. plc and Shell U.K. Exploration & Production have revealed their price expectations.

Brent crude for prompt delivery closed at $12.85/bbl in London on Apr. 7, while Brent crude for May delivery closed at $13.75/bbl. The prices fell 33¢ and 23¢, respectively, during the day. Although oil prices have recovered from the recent 10-year low of $11.24/bbl for prompt Brent, traders remain skeptical about the promised output cut (OGJ, Mar. 30, 1998, p. 22).

BP view

BP CEO John Browne last week told analysts that his company can hike profits by an average $2 billion/year to an average $6 billion/year within 5 years.

Browne said BP can hit recently set financial targets even if oil prices and refining margins remain at current levels. He said BP planners assume Brent crude averages $16/bbl this year, while margins will average $2/bbl.

"Our conclusion," said Browne, "is that we can target underlying performance improvement of $2 billion with confidence, and that the same level of improvement can be achieved, perhaps with a small timing adjustment, even if oil prices remain at around $14/bbl.

"We are helped by the strategy we adopted 2 years ago, which assumed that there would be cycles in each of our businesses and that we had to ensure the company as a whole could come through those cycles without any sense of crisis and without disrupting plans for medium and long-term growth."

Shell Expro

Heinz Rothermund, managing director of Shell Expro, told reporters on Apr. 7 that, while the company has not revised its investment plan in line with $14/bbl oil, it expects prices to remain low for the near future.

"How to survive when the oil price is $14/bbl is a relative question," said Rothermund. "After all, it's $14/bbl for everyone. If we saw $14/bbl oil continuing into the future, we would cut our North Sea investment plans."

Rothermund said North Sea operators have reduced inefficiencies enormously since the early 1990s, and by almost 50% in Shell Expro's case. He cited one concern for U.K. operators: government plans for petroleum tax changes: "It's difficult to say where the government is coming from now. Uncertainty is always difficult to deal with."