THE BUSINESS: BP overtakes Shell on profits

THE BUSINESS: BP overtakes Shell on profits

“Jonathan Wright at Citigroup said: “We look for BP to be the star performer of the results season while Royal Dutch Shell causes us concerns with the risk of further project delays.”

Sunday July 24, 2005

By: Richard Orange

BP IS set to trump Royal Dutch Shell on Tuesday with record $5.7bn (£3.2bn, €4.6bn) quarterly profits, thus overtaking its arch rival as the most profitable UK company.

Shell results on Thursday are expected to come in below BP’s, with profits of some $5.4bn. Shell last year produced $18bn profit, the greatest ever for a UK company, while BP lagged behind at just over $16bn.

Shell was ahead again in the first quarter of 2005, posting $5.3bn to BP’s $5bn, but BP has started to pull ahead as Shell’s production declines – some 4% this quarter to 3.4m barrels per day – and BP responds better to current conditions thanks to the quality and geography of its refining business. BP is expected to report a 3% increase in production to 4.1m barrels per day.

Jonathan Wright at Citigroup said: “We look for BP to be the star performer of the results season while Royal Dutch Shell causes us concerns with the risk of further project delays.”

Angus McPhail at ING said: “I think the real story’s in the refining downstream where I think BP’s going to do significantly better than Shell.”

The City will be eager for news from BP on whether an accident at its Thunderhorse platform in the Gulf of Mexico, which left it listing at 20 degrees, will lead to delays to the project, designed to begin production later this year. BP has already righted the platform, but it is unclear whether the listing revealed a serious design flaw and whether any equipment was damaged.

The boom conditions for the international oil industry are pointing towards another year of record profits, as the high oil price and wide refining margins stay in place for longer than most analysts expected. US oil majors Exxon Mobil, Chevron and ConocoPhillips, are also expected to report record results this week.

Merchant bank CSFB argues that the City is currently forecasting oil company profits will be some 15% below where they will be later in the year if oil prices remain high for the rest of the year.

CSFB analyst Ed Westlake said: “They have to be assuming that oil prices will subside in the second half of the year. These results could herald a round of upgrades.”

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