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BP Seen Doing Better Than Shell In 2Q


July 20, 2009

By James Herron


TAKING THE PULSE: U.K. oil companies continue to be buffeted by big shifts in the global economy and analysts expect their second quarter earnings to be largely dictated by macroeconomic forces.

Oil prices rebounded significantly from the first to the second quarter due to growing optimism over imminent economic recovery. The average price of a barrel of Brent crude was almost a third higher in the second quarter versus the first, although it remained at less than half the level of the record-breaking second quarter of 2008.

Natural gas demand in Europe, the U.S. and Asia remained weak as economies continued to contract. Refining margins were depressed as demand for both oil products and petrochemicals was poor globally. Strong trading profits from BP PLC (BP) and Royal Dutch Shell PLC (RDSB.LN), who took full advantage of the steep contango in oil markets in the first quarter, are not expected to be repeated.

BP is widely seen as having benefitted most from these conditions, while Shell is expected to suffer the most.


Royal Dutch Shell PLC (RDSB.LN) (0600 GMT Thursday July 30)

MARKET EXPECTATIONS: Weak European gas markets, which have suffered considerably more than oil from the economic slump, are seen having a significant drag on Shell’s second quarter earnings.

“Shell appears to be at the greatest risk of negative revisions in the run-in to 2Q results given its areas of operational exposures,” said Citigroup.

Both volumes and prices are expected to be weak.

Production volumes are seen falling 5-6% year-on-year due partly to regular attacks on Nigerian oil infrastructure. Profits are expected to be down both on the second quarter of 2008 and the previous quarter. Its refining division may post a loss, said Credit Suisse.

MAIN FOCUS: This will be Shell’s first set of results with Peter Voser as Chief Executive. The market will be keenly watching for any further organizational changes in the wake of the broad restructuring of the company Voser announced last month.

BP PLC (BP) (0600 GMT Tuesday July 28)

MARKET EXPECTATIONS: BP is widely seen as well positioned to have made the most of stronger oil prices relative to the first quarter due to the ramp up of the new Thunder Horse field in the Gulf of Mexico and broader operational improvements. Production is seen up 3-4% year on year. BP is also less exposed to weak European gas markets and globally weak refined product and chemical markets than Shell, analysts said. Profits will be down substantially on the year, analysts expect, but are likely to rise slightly from their trough last quarter.

MAIN FOCUS: Analysts said BP’s operational turnaround really began to show some payback in the first quarter of this year. “An ambitious cost-cutting program…appears to be ahead of schedule,” said HSBC. “Confirmation of this could improve investor sentiment towards BP,” the bank added.

BG Group PLC (BG.LN) (0600 GMT Wednesday July 29)

MARKET EXPECTATIONS: BG Group has lower oil price exposure than both BP and Shell so it is expected to see less of a boost from the resurgence in oil prices in the second quarter. However, its smart hedging strategy that locked in profits in Asian liquefied natural gas markets when prices were peaking last year should provide some support to earnings and production is seen up 6% on the year, said Citigroup.

MAIN FOCUS: Analysts will be looking out for any update on drilling and appraisal work offshore Brazil, where previous huge oil finds have had a huge positive influence on the company’s share price.

Company Web sites:

-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected]

WSJ Article

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