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Shell profits to tank as oil price nears $40 a barrel

Daily Telegraph

The oil company Royal Dutch Shell is expected to have suffered a drop in profits of between 40pc and 60pc in the fourth quarter of last year, after the price of crude dropped to record lows of $42 a barrel. 

Analysts estimate Shell’s fourth-quarter profits are likely to be in the region of $4bn (£3bn), which may force the world’s second largest non state-owned oil company to rein back investment in new projects and hiring this year.

Shell declined to comment on the possibility that job cuts may be announced when the group reports its full-year results on Thursday.

The drop in profits is likely to overshadow Shell’s expected report of record earnings for the year – estimated at $30.7bn. The year total was boosted by oil price highs of $147 a barrel last summer.

The persistent depression of oil prices combined with a weakening demand for fuel could make for a tough start to the tenure of incoming Shell chief executive Peter Voser, who is due to take over from Jeroen van der Veer in July.

Analysts at ING are predicting average sector profits for the fourth quarter to be down 27pc on the year before, meaning oil company shareholders who are used to record dividends are likely to see their payments fall significantly.

Forecasts for rival oil company BP predict fourth-quarter profits of $2.98bn, in line with its 2007 profits – the year in which the company suffered problems at its US refining business. BP is expected to report healthy full-year profits of $26.5bn – more than 50pc up on 2007, but the cautious outlook for 2009 is likely to put a dampener on the results.

Plunging profits in the fourth quarter are expected to be mirrored across the world when France’s Total, Italy’s Eni and the US’s Exxon Mobil Corp report their results.

Shell has already delayed a project in Canada, while more investment in exploration has been shelved in the US, Mexico and Damman, Saudi Arabia, on the basis of weak oil prices.

Energy analysts have argued that under-investment caused by flagging profits this year could cause a price “time-bomb” in the future.

“The oil price would need to be in the range of $70-$80 a barrel to make these projects economically viable,” said Ian Parrett, an analyst at energy consultants Inenco.

However, Middle East investment is still thriving. Oil facilities provider Petrofac was awarded a $2.3bn contract over the weekend by Abu Dhabi Company for Onshore Oil Operations (ADCO) for the development of the onshore Asab oil field.

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