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OIL GIANTS BACK IN BLACK AS CRUDE RISES

By Geoff Ho: Sunday October 28,2012

OIL giant BP is expected to return to profit this week when it reports its third-quarter results thanks to the rising oil price, while arch-rival Royal Dutch Shell is also set to announce improved profits.

BP is expected to make a net profit of $4 billion (£2.5 billion) for the three months to September 30, which would return it to profitability after registering a $1.3 billion loss in the preceding quarter. The oil giant will unveil its third-quarter results on Tuesday.

City analysts expect Royal Dutch Shell to report a net profit of $7.3bn, an increase of 79.7 per cent on the second quarter, when it announces its third-quarter results on Thursday.

The profitability of both oil giants has been helped by the 19 per cent plus rise in oil prices during the third quarter. Additionally, both firms are not expected to report any major one-off losses or write-downs as they did for the second quarter.

BP was plunged into loss in the second quarter after having to write down the value of some of its refineries and its US shale gas assets, the suspension of its Liberty offshore oil project in Alaska and having to set aside more money to cover legal costs related to the 2010 Gulf of Mexico oil disaster.

Shell’s profitability in the third quarter is expected to recover, after plant shutdowns and increased costs eroded profits earlier in the year.

For BP, the return to profitability will provide a further boost to chief executive Bob Dudley’s credibility with the oil company’s key investors.

Earlier this month BP agreed to sell its 50 per cent stake in its Russian joint venture TNK-BP to Rosneft for $26 billion, a cash and shares deal that will finally end its troubled relationship with the oligarchs that were its partners.

The deal, which still has to be signed off by the Russian government, is expected to be finalised early next year.

BP’s major investors are adamant that the firm must hold onto the Russian windfall, rather than spend it on paying special dividends or acquisitions.

They believe that doing either would “send the wrong signal” to the US authorities.

BP is locked in talks with the US Department of Justice about settling all criminal and civil liabilities related to the Gulf of Mexico oil spill. BP could be forced to pay up to $25 billion as a settlement.

One leading BP shareholder said: “We think that BP should hold off until they settle things first with the Department of Justice. It would be madness to try to do anything else before then.”

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