David KnottRoyal Dutch/Shell and BP Amoco plc have furled their sails in anticipation that oil prices will stay becalmed at $10-11/bbl, with BP Amoco preparing for further reductions in its crew.
Disclosing results for 1998, both blamed dramatically reduced income on low oil prices.
RD/Shell reported earnings, before special items, of $5.146 billion for the year, down from $8.031 billion in 1997. But net income after special charges fell a massive 95% on the year, to $350 million from $7.753 billion. That resulted from a write-down of $4.4 billion in the fourth quarter to cover anticipated redundancy and restructuring charges plus asset devaluations.
Mark Moody-Stuart, chairman of RD/Shell, said the group's fall in income was larger than some of its competitors, but that drastic remedial measures had been implemented in December (OGJ, Dec. 21, 1998, p. 31).
He said that, despite its recent poor performance, the company is still generating $15 billion/year in cash, which is more than enough to maintain its dividend payments and fund its investment program.
Key issuesShell's decline was blamed on a 33% fall in crude oil prices during the year and the effects of the recession in the Asia-Pacific region.
"The key issue for 1998 was the oil price," said Moody-Stuart, "which was almost $6/bbl below the average 1997 level and in the fourth quarter was $7.50/bbl below the fourth quarter 1997 level.
"The likelihood of oil moving back above $15/bbl in the near term is low, and a Brent crude price around the $10/bbl level is more likely for some time."
Yet Moody-Stuart claimed that many financial indicators for Shell have begun to move in the right direction, and that the company would be robust in a $10 world.
"While low oil prices are not good for the industry as a whole," said Moody-Stuart, "the group is well-placed to meet the challenge. Our investment plans internationally are now tested for $10/bbl and even lower."
More layoffsMeanwhile, BP Amoco combined results to report a replacement-cost operating profit of $6.437 billion in 1998, down from $10.583 billion for the two combined companies in 1997.
BP Amoco's profits showed less damage than Shell's, down to $4.651 billion in 1998 from $6.969 billion in 1997, but it, too, reported a fourth quarter write-off, of $351 million for rationalization and asset devaluation.
John Browne, chief executive of BP Amoco, said last year's merger took the companies a long way towards fulfilling their strategic ambitions and provided a powerful platform for growth, even in a hostile environment.
"In total," said Browne, "we made $500 million in underlying post-tax gains in 1998. This shows that the past commitments of both BP and Amoco to improve their performance through self-help are being solidly delivered.
"BP Amoco is approaching 1999 on a cautious basis, with maximum flexibility, assuming a Brent crude oil price of $11/bbl and continued depressed demand in refining, marketing, and chemicals."
Having slated 7,000 job losses already, Browne had more bad news: BP Amoco's planned $1.5 billion outlay on restructuring this year is to include a further 3,000 layoffs in 1999.
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