|
 Large oil companies have closed down dozens of refineries in the
past few years due to over capacity and because refining, or
downstream in industry jargon, has been long seen as a drag on
earnings compared to more profitable oil and gas production.
But a slump in oil prices, benchmark Brent prices almost halved to
$55 a barrel in the first quarter of 2015 from a year ago, meant
refineries could process much cheaper crude and generate higher
profits on fuels such as diesel or gasoline.
As a result, BP's underlying pre-tax replacement cost profit from
downstream businesses in the first quarter of 2015 more than doubled
to $2.2 billion (1 billion pounds). At the same time, pre-tax
profits from oil and gas production, or upstream, collapsed to $0.6
billion from $4.4 billion a year earlier.
At Europe's largest refiner Total, adjusted net operating income
from refining and chemicals more than tripled from the first quarter
last year to $1.1 billion, almost matching contributions from
upstream of $1.36 billion, down 56 percent.
"Majors with high downstream exposure such as Royal Dutch Shell,
Total or ExxonMobil should benefit from the strong global refining
environment, which BP expects to last into the second quarter,"
analysts from Edison Investment Research said in a note.
Weaker refining margins so far in the second quarter as a result of
higher crude oil prices mean next quarter's results might not
benefit so much from downstream, analysts said.
BP's overall profit fell 20 percent from last year to $2.58 billion
and Total's was down 22 percent at $2.60 billion, but in both cases
their strong refining performances meant the results beat analysts'
expectations.
Shares of BP and Total rose 1.4 and 2.0 percent respectively, both
outperforming the broader European oil and gas sector's index.
OIL PRODUCTION RISES
Despite the collapse in upstream earnings, analysts pointed out that
both BP and Total had hefty increases in production after years of
unimpressive growth, meaning earnings should recover quickly as soon
as oil prices rise.
[to top of second column] |
Total said its oil and gas output of 2.4 million barrels per day of
oil equivalent (boed) during the first quarter was up 10 percent
year-on-year thanks to new projects in Norway, Nigeria and the North
Sea, as well as a new concession in the UAE.
Bertrand Hodee from Raymond James said five more new projects later
this year in Russia, Australia, the North Sea, Canada and Argentina
should help support growth further.
BP's overall production, excluding Russia and adjusted for
divestment, was up 3.7 percent to 2.3 million boed, also driven by
new projects.
BP said besides lower oil prices, its upstream results were also hit
by a $375 million break fee for two deepwater rig contracts in the
US Gulf of Mexico, which sent BP's U.S. upstream business into a
$545 million loss.
"Rig cancellation costs are likely to show up in other majors'
results this quarter, as all majors rein in offshore drilling
activity," analysts from Edison said.
Oil giants have responded to the sharp drop in oil prices in recent
months by cutting 2015 capital spending by an average of 10-15
percent and initiating large restructuring programs and
renegotiating service contracts.
On the downside, BP disappointed analysts with a plunge in cash flow
to $1.86 billion from $8.23 billion a year earlier due to the lower
oil prices and as a result of a large build-up in the company's oil
stocks.
Total's first quarter adjusted cash flow from operations was down 25
percent from a year earlier at $4.64 billion.
(Writing by Dmitry Zhdannikov; editing by David Clarke)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
