Oil and gas companies post bumper third-quarter results

As higher prices and better margins on refining prevail, for the moment anyway, oil and gas companies have been posting strong third-quarter results. How long that will last with the global economy seemingly balancing on the brink of the abyss, remains to be seen. But in the long view that oil and gas companies must take, given the investment decisions that they have to make, there will always be high demand for fossil fuels for probably decades to come.

ExxonMobil reported third-quarter earnings of US$10.3bn, a 41% hike from the same period in 2010. This was attributed, said the company’s chairman, Rex W Tillerson in a statement, “To higher crude oil and natural gas realisations and improved refining margins.” The entire year so far shows a similar pattern as ExxonMobil said that earnings for the first nine months of 2011 were US$31.7bn, up 49% from the first nine months of 2010. Tillerson was bullish about investment for the future too as the company uses cash flows to pursue and create new opportunities, “In the third quarter, capital and exploration expenditures were US$8.6bn, and reached a record level of US$26.7bn for the first nine months of the year as we continue pursuing new opportunities to meet growing energy demand while supporting economic growth, including job creation,” Tillerson said. Interestingly, Tillerson stated that Exxon Mobil actually achieved the third-quarter earnings with 4% less in oil equivalent production.

Aside from agreeing in principle with the government of Indonesia to develop the Natuna gas resource and the announcement of the construction of a metallocene synthetic lubricant basestocks at the integrated complex in Baytown, Texas, the jewel in ExxonMobil’s third-quarter crown must surely be the strategic cooperation agreement with Rosneft to develop Arctic and Black Sea resources. The latter of these was so nearly BP’s.

Shell
Energy Giant Royal Dutch Shell has released its third-quarter results too. The company posted earnings of US$7.2bn more than double the US$3.5bn for the same period in 2010. Cash flow from operating activities is up too at US$10.6bn compared to 2010’s US$8.1bn. The company said that its capital investment for the quarter was US$6.1bn. “Our profits pay for Shell’s substantial investments in new energy projects, to ensure low-cost, reliable energy supplies for our customers and to create value for our shareholders,” said Shell’s CEO, Peter Voser, in a statement. “Our third-quarter results were higher than year-ago levels, driven by higher oil prices and Shell’s performance.”

Shell has decided to dispose of some of its non-core assets in addition to pursuing a growth strategy. “We completed US$6.2bn of asset sales this year, with US$1.8bn in the third quarter 2011, including a refinery in the United Kingdom and non-core upstream assets in the Americas,” said Voser. “We have delivered on our target for US$5bn of disposals this year, ahead of schedule. Asset sales from non-core positions will continue.” On the growth side, Voser said that, “The Athabasca Oil Sands Project Expansion 1 in Canada and the Pearl Gas-to-Liquids (GTL) Train 1 in Qatar have ramped up and production should stabilise at plateau rates shortly.” And, seemingly, there is more to come, “These projects in Qatar and Canada are part of a series of over 20 new upstream start-ups planned for 2011-14, as we deliver on our plans for sustainable growth, driving Shell’s financial and operating targets for 2012,” said Voser.

BP

With the Deepwater Horizon disaster, followed by the failure to get the deal with Rosneft, BP could do with some good news. Posting its third-quarter results recently it seems that 2011 may be somewhat of a turning point. “The financial picture for BP today is very different from a year ago,” said group chief executive, Bob Dudley in a statement. “We are today reporting replacement cost profits for the first nine months of this year of US$15.9bn, compared to a US$9.5bn loss for the same period in 2010, which was driven by the US$40bn charges we had taken with respect to Gulf of Mexico spill-related costs.” BP said that its reported replacement cost profit for the third quarter of 2011 was US$5.1bn.

Hopefully, the company can now move forward and seek to rebuild its reputation. For instance, the company’s recent announcement of it receiving UK government approval for a US$4.5bn investment in the Clair Ridge field, west of the Shetlands, will be a help. “The past year has been unprecedented in its challenges; and BP has responded well. We have laid firm foundations for the future in safety, in our organisation and in developing new growth opportunities,” said Dudley. “We have now reached a definite turning point. Our operations are regaining momentum and we are facing the future with great confidence. I believe we will build on our strengths to substantially grow operating cash flows, allowing us to directly increase returns to shareholders as well as invest for future growth.” BP said that it intended to double its investment operations in deep water, the management of giant fields and building gas value chains. The company also confirmed it planned to develop its downstream business while seeking to build alliances with major resource holders and apply advanced technology to its upstream activities. What the company certainly does not need, however, in the short- to medium term is anything remotely approaching what happened in the Gulf of Mexico.

In a time of enforced austerity, oil and gas companies need to tread somewhat of a fine line as it is not good to trumpet bumper earnings and profits when some people are figuring out whether they should buy heat or food for their families. With governments under pressure too to be seen to do something when in reality there seems little that they can do policies such as windfall taxes may well spring to mind. However, if the companies can show that the majority of the profits are being ploughed back into the business and creating jobs and benefiting the economy, so much the better.