Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.

Less Ads, More Data, More Tools Register for FREE

Pin to quick picksBP Share News (BP.)

Share Price Information for BP (BP.)

London Stock Exchange
Share Price is delayed by 15 minutes
Get Live Data
Share Price: 495.70
Bid: 496.00
Ask: 496.10
Change: 2.90 (0.59%)
Spread: 0.10 (0.02%)
Open: 495.45
High: 498.75
Low: 493.30
Prev. Close: 492.80
BP. Live PriceLast checked at -

Watchlists are a member only feature

Login to your account

Alerts are a premium feature

Login to your account

Oil companies' profits hit by quest for crude price exposure

Mon, 13th Apr 2015 12:25

* Companies sought more price exposure ahead of crudecollapse

* Profits increasingly sensitive to oil price moves

* Firms still hope oil prices will rise and justify strategy

By Tom Bergin

LONDON, April 13 (Reuters) - The drop in big oil companies'profits in the past eight months isn't just a function of lowercrude prices - it also reflects strategic choices.

A Reuters examination of corporate filings by some of thebiggest players in the industry, including BP, Shell and France's Total, shows the sensitivity ofthese companies' earnings to changes in oil prices has risen inrecent years.

This means that for every dollar the oil price drops, theirprofits sink more than they might have done five years ago.

Of course, that wasn't the plan. Choices made by several oilmajors that built more exposure to prices into their portfolio,mainly through the kinds of contracts they opted to sign, wasaimed at enjoying prices that were historically high.

"In simple terms it (oil price sensitivity) has increasedand that's been a deliberate choice," Simon Henry, ChiefFinancial Officer at Royal Dutch Shell Plc, Europe's largest oilgroup by market value, told Reuters.

"We took a view that prices were going to go up and that ourportfolio was less exposed than it should be in that environmentbecause of the types of contracts we had in place," he said.

Shell made the decision in the early 2000s and it tookaround a decade for that to have a real impact on the company'sbottom line, Henry said.

In 2009, Shell's then-CEO Peter Voser said a $1 move in thecrude price would shift earnings up or down by around $200million. In January, Henry estimated the impact of a dollar moveon earnings was around $330 million and increasing.

Brent crude averaged $54 per barrel in the first quarter of2015 - half of what it was in the same period last year. If thecurrent price holds, the hit to Shell's pre-tax earnings fromthe increased sensitivity alone could run to billions of dollarsa year compared to what it would have been if the 2009 linkagebetween profits and oil prices had held steady.

Filings from Europe's second and third largest oil groups,London-based BP and Paris-based Total, show a similar trend.

In early 2013, London-based BP said a $1 change in the oilprice would lead to a $250 million change in annual pre-taxreplacement cost operating profit in its oil and gas productiondivision. In March, the company said on its website that a $1movement in Brent would change earnings by $300 million.

Total said in 2013 that a $1 rise in Brent would liftadjusted net operating income by $140 million. Earlier thisyear, it said the impact would be $170 million.

The increase in sensitivity is despite the fact thatproduction levels - the main determinant of how much oil priceshit earnings - have fallen at all three companies.

SLOW TURNAROUND

Many oil companies missed out on much of the benefit of theoil price surge from 2004 to 2008. Instead governments grabbedmost of the gains, in part due to the contracts the companieshad signed years earlier.

Historically, companies bought exploration licenses andagreed that, if they struck oil, they would pay governments aroyalty - often a share of output - even if no profit wasdeclared.

During the 1990s, when oil prices were low and profitmargins tight, companies signed an increasing number ofProduction Sharing Agreements (PSAs), which offered returnsbased on the cash they invested. That meant companies had abetter chance of getting their money back.

But the safety came at a cost.

"You're protected on the downside, but you lose some of theupside," said Neill Morton, oil analyst with Investec.

Morton said the contracts became less popular with investorsas oil prices soared in the mid-2000s.

Shell was one of the first companies to make the shift toprojects with greater oil price sensitivity. It increasedinvestments in OECD countries, which do not typically offerPSAs, and, where it did sign PSAs, it sought to link the returnsto prices rather than accept a fixed return on money invested.

Others followed its lead.

"It was a general trend. Companies were keen to capture theupside from oil prices," said Tom Ellacott, at consultants WoodMackenzie.

In February 2008, Philippe Boisseau, president for Gas &Power at Total, told investors that his company was reducing theshare of its production that came from production-sharingcontracts that only offered a fixed return.

In July 2008, BP's then-CFO Byron Grote told investors thegroup was accelerating its exploration programme and looking foropportunities "especially in our key tax and royalty areas, thatallow us to capture price upside".

Total declined to comment on its current strategy in respectto oil price exposure. BP said the company didn't target aspecific exposure but rather managed its portfolio over time tomaximize returns and balanced investments between PSAs and taxand royalty regimes.

BG Group, which last week agreed a $70 billion takeover byShell, said its oil price sensitivity increased simply becausethe historically gas-focused company discovered a lot of oil.

The world's largest oil company by market value, Exxon Mobil has seen no change in its sensitivity to oil prices inrecent years, while Chevron does not publish figures. Bothdeclined comment.

Ellacott said that while the strategy of gaining moreexposure to oil prices may hurt today, oil projects had a longlife and most oil companies remain optimistic about long termoil prices.

Shell is unapologetic about its decisions. CFO Henry saidthe world's growing energy needs would support crude prices inthe years to come.

"We still firmly believe that absence war, pestilence andfamine, demand will continue to grow," Shell's Henry said. (Reporting by Tom Bergin; Editing by Sonya Hepinstall)

More News
Today 10:00

How the oil industry is thriving despite Joe Biden's climate policies

GRAPHIC on Biden's oil boom: https://www.reuters.com/graphics/USA-BIDEN/OIL/lgpdngrgkpo/

By Nichola Groom, Jarrett Renshaw

Read more
27 Mar 2024 20:59

New England offshore wind auction draws multiple bidders

March 27 (Reuters) -

Read more
27 Mar 2024 12:47

Ithaca Energy gets bid rights on Eni's UK assets, profit slips

March 27 (Reuters) - Ithaca Energy has been given a four-week exclusivity period by Italy's Eni, to make an offer for UK exploration and production assets that could expand its output massively, the London-listed company said on Wednesday.

Read more
27 Mar 2024 09:01

Big Oil's climate planning not good enough, investor group says

Climate Action 100+ assessed 10 top oil companies

*

Read more
27 Mar 2024 08:31

Big Oil's climate planning not good enough, investor group says

Climate Action 100+ assessed 10 top oil companies

*

Read more
25 Mar 2024 16:51

LONDON MARKET CLOSE: Renewed global tensions put pressure on stocks

(Alliance News) - Stock prices in London started the week in bad shape and closed lower on Monday, as investors sat on their hands amid rising global tensions.

Read more
21 Mar 2024 15:00

UK dividends calendar - next 7 days

Friday 22 March 
easyJet PLCdividend payment date
FRP Advisory Group PLCdividend payment date
Gulf Investment Fund PLCdividend payment date
Henderson Opportunities Trust PLCdividend payment date
Hercules Site Services PLCdividend payment date
Impax Asset Management Group PLCdividend payment date
JLEN Environmental Assets Group Ltddividend payment date
JPMorgan Multi-Asset Growth & Income PLCdividend payment date
Mattioli Woods PLCdividend payment date
Mobeus Income & Growth 2 VCT PLCdividend payment date
Mobeus Income & Growth 4 VCT PLCdividend payment date
Ramsdens Holdings PLCdividend payment date
Riverstone Credit Opportunities Income PLCdividend payment date
Ruffer Investment Co Ltddividend payment date
Samuel Heath & Sons PLCdividend payment date
Troy Income & Growth Trust PLCdividend payment date
Unilever PLCdividend payment date
Monday 25 March 
AstraZeneca PLCdividend payment date
Endeavour Mining PLCdividend payment date
Mountview Estates PLCdividend payment date
Shell PLCdividend payment date
Tuesday 26 March 
no events scheduled 
Wednesday 27 March 
abrdn Diversified Income & Growth PLCdividend payment date
Thursday 28 March 
Alliance Trust PLCdividend payment date
Balanced Commercial Property Trust Ltddividend payment date
Berkeley Group Holdings PLCdividend payment date
BHP Group Ltddividend payment date
BlackRock Energy & Resources Inc Trust PLCex-dividend payment date
BlackRock Sustainable American Income Trust PLCex-dividend payment date
BlackRock Throgmorton Trust PLCdividend payment date
BP PLCdividend payment date
City of London Investment Group PLCdividend payment date
Crown Place VCT PLCdividend payment date
CT UK Capital & Income Investment Trust PLCdividend payment date
Develop North PLCdividend payment date
Diversified Energy Co PLCdividend payment date
Downing Renewables & Infrastructure Trust PLCdividend payment date
Gateley Holdings PLCdividend payment date
Genus PLCdividend payment date
Hargreaves Lansdown PLCdividend payment date
HICL Infrastructure PLCdividend payment date
Idox PLCex-dividend payment date
Imperial Brands PLCdividend payment date
Melrose Industries PLCex-dividend payment date
Mid Wynd International Investment Trust PLCdividend payment date
Moneysupermarket.com Group PLCex-dividend payment date
NextEnergy Solar Fund Ltddividend payment date
North Atlantic Smaller Cos Investment Trust PLCdividend payment date
Personal Group Holdings PLCex-dividend payment date
Premier Miton Global Renewables Trust PLCdividend payment date
Quartix Technologies PLCex-dividend payment date
Renewables Infrastructure Group Ltddividend payment date
Schroder Real Estate Investment Trust Ltddividend payment date
SDCL Energy Efficiency Income Trust PLCdividend payment date
Smith & Nephew PLCex-dividend payment date
Taylor Wimpey PLCex-dividend payment date
Thames Ventures VCT 2 DSO 1 D PLCdividend payment date
Travis Perkins PLCex-dividend payment date
Utilico Emerging Markets Trust PLCdividend payment date
Vaalco Energy Incdividend payment date
Value & Indexed Property Income Trust PLCex-dividend payment date
VH Global Sustainable Energy Opportunities PLCdividend payment date
Volution Group PLCex-dividend payment date
Wynnstay Group PLCex-dividend payment date
  
Comments and questions to newsroom@alliancenews.com
  
A full 14-day events calendar is provided each day with a subscription to Alliance News UK Professional.
  
Copyright 2024 Alliance News Ltd. All Rights Reserved.

Read more
19 Mar 2024 16:57

LONDON MARKET CLOSE: European large-caps rise on eve of Fed decision

(Alliance News) - Blue-chip stock prices in Europe closed higher on Tuesday, showing little signs of nerves ahead of Wednesday's Federal Reserve decision and UK inflation reading.

Read more
19 Mar 2024 11:52

LONDON MARKET MIDDAY: European markets flat ahead of Fed and BoE

(Alliance News) - Stock prices in London were down at midday on Tuesday, as investors sat on their hands ahead of interest rate decisions from the UK and US.

Read more
18 Mar 2024 11:49

LONDON MARKET MIDDAY: FTSE 100 as shakes off pre-interest rate nerves

(Alliance News) - Stock prices in London were higher at midday Monday, as eyes were firmly on interest rate decisions across the globe.

Read more
15 Mar 2024 13:07

IN BRIEF: Costain wins place on GBP4 billion carbon capture project

Costain Group PLC - Maidenhead, Berkshire-based construction and engineering firm - Selected as one of nine specialist partners to deliver a carbon capture project beneath the North Sea off the east cost of England. The engineering, procurement, and construction contracts for the East Coast Cluster have a combined value of around GBP4 billion, Costain says. The contracts will be with Net Zero Teesside Power and the Northern Endurance Partnership. NZT Power is a electricity generating joint venture of the UK's BP PLC and Norway's Equinor. NEP is a joint venture of BP, Equinor and France's TotalEnergies SE that will provide CO2 transport and storage for the East Coast Cluster. Final investment decisions are expected in September or earlier, with the projects aiming for commercial operations from 2027.

Read more
15 Mar 2024 12:11

LONDON MARKET MIDDAY: FTSE 100 underperforms despite mining, oil boost

(Alliance News) - London's FTSE 100 overcame a muted morning to head into Friday afternoon on the up, though its progress was shy of the loftier gains seen by mainland European peers, as investors showed some signs of trepidation ahead of a pair of interest rate decisions next week.

Read more
14 Mar 2024 11:54

BP details green credentials in similar push towards net zero as Shell

(Alliance News) - BP PLC on Thursday outlined similar targets to cut emissions as peer Shell PLC, as both oil and gas majors strive to become net zero for carbon emissions by 2050.

Read more
14 Mar 2024 10:19

BP picks up Ashford site to boost electric charging scope for trucks

(Alliance News) - BP PLC on Thursday stepped up plans to increase its electric charging capacity for heavy goods vehicles by buying one of the largest truck stops in Europe.

Read more
8 Mar 2024 13:42

BP appoints Aviva boss Amanda Blanc as senior independent director

(Sharecast News) - Oil giant BP said on Friday that it has appointed Aviva chief executive Amanda Blanc as senior independent director with effect from after the annual meeting on 25 April.

Read more

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.