Shell's earnings beat Exxon
as oil majors adapt to low prices
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[November 01, 2016]
By Ron Bousso and Karolin Schaps
LONDON
(Reuters) - Royal Dutch/Shell and BP on Tuesday joined peers in
reporting higher than expected earnings by making further deep cuts in
spending to cope with an oil price downturn now in its third year.
Shell's stocks rose by over 3 percent as it announced higher quarterly
earnings than arch-rival U.S. Exxon Mobil, the world's largest listed
company by output. Anglo-Dutch Shell is hoping to outgrow Exxon over the
next few years after acquiring rival BG for $54 billion earlier this
year.
By contrast, BP's stock fell by three percent as some analysts said its
results were boosted by a one-off tax gain, meaning its longer-term
profits and ability to pay dividends could still be at risk.
Shell's Chief Executive Officer Ben van Beurden said the oil sector had
yet to emerge from troubled waters, but huge cost savings meant oil
majors were getting closer to balancing their operations at today's oil
prices of around $50 a barrel.
The prospects for an oil price recovery are still unclear, van Beurden
said, despite attempts by OPEC and other producers to agree a deal to
limit output and reduce the global glut which has pushed oil prices down
by 50 percent since June 2014.
"Lower oil prices continue to be a significant challenge across the
business, and the outlook remains uncertain," van Beurden said.
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The world's top oil and gas companies, including Exxon and Chevron,
reported sharp drops in quarterly results last week due to lower oil
prices and weaker refining margins.
But at the same time, companies have adapted to the new environment with
both Exxon and Chevron beating earnings expectations.
French oil major Total also beat third quarter income expectations
helped by cost cuts, new projects and renewables and only smaller rivals
Norway's Statoil and Italy's ENI missed expectations due to
lower-than-expected output. BP Chief Financial Officer Brian Gilvary
said the British company was on track to rebalance cash flows next year
at $50 to $55 a barrel.
BP reported a near halving in third-quarter earnings and slashed another
$1 billion from its 2016 investment plan, while Shell saw an 18 percent
rise in profits and lowered next year's capital spending to the bottom
of the expected range.
The Anglo-Dutch oil major, whose acquisition of BG Group transformed it
into the world's top liquefied natural gas producer, has been under
pressure from shareholders to cut annual spending to ensure it can
maintain its dividend given the slow recovery in the oil prices.
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![](../images/110116pics/busine35.jpg)
A woman holds the handle of an old pram in front of vintage Shell
petrol pumps at the annual Goodwood Revival historic motor racing
festival, near Chichester, Britain September 9, 2016. REUTERS/Toby
Melville/File Photo
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Shell disappointed the market with its second-quarter results, the first
full quarter following the completion of the BG acquisition in February,
by missing expectations by around 50 percent.
At $2.8 billion in the third quarter, Shell's net income was above
Exxon's third quarter net income of $2.65 billion.
Oil companies have slashed spending, scrapped new projects, slashed tens
of thousands of jobs, renegotiated supply contracts and increased
borrowing in order to weather the more than halving of oil prices since
June 2014.
"Drilling down to the key fundamentals, oil producers have to cut costs
to survive in a lower-for-longer price environment," said Neil Wilson,
analyst at ETX Capital.
Exxon warned last Friday it may need to slash proved oil and gas
reserves on its books by nearly 20 percent, or some 4.6 billion barrels,
if oil prices stay low for the rest of 2016.
BP benefited from UK fiscal regime changes, resulting an a $164 million
tax credit in the third quarter, compared with a $1.16 billion tax bill
in the same quarter last year.
"Despite mixed numbers and a modest increase in gearing, the overall
trend in cost and capex savings and cash flows at BP continues to head
in the right direction," analysts from Morgan Stanley said in a note.
(additional reporting by Christoph Steitz in Frankfurt; editing by
Philippa Fletcher)
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