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Voser sweeping cost-cutting expected to include thousands of redundancies

The Sunday Times

UK oil giants’ profits plunge $10bn

July 26, 2009

Danny Fortson

THE world’s biggest oil and gas companies are suffering the most precipitous fall in profits in the history of the industry, it will be revealed this week.

Several of the sector’s top players – including BP, Royal Dutch Shell and BG Group – will announce quarterly earnings this week, revealing the extent of the damage wrought by a combination of recession, the falling value of gas and an oil price that remains far below the record levels it reached a year ago. Oil has fallen from $147 a barrel to $68.

Concerns are rising that if the situation does not improve quickly the industry could be forced into drastic restructuring, with some compelled to sell major assets, exit countries or even entire regions, and slash dividends.

One industry source said: “If things continue like this, it won’t be a question of selling a few old assets in the North Sea to help fund their capital programmes. It will be a question of getting out of the North Sea entirely.”

The oil industry relies on cash flow to fund the hundreds of billions it spends every year to find new sources around the world. The recovery of the oil price from the lows it hit this year has been more than offset by weaker demand and falling gas prices.

When it reveals its performance for the three months to June on Thursday, Shell is expected to report profits of about $2.4 billion (£1.5 billion), down more than two-thirds compared with last year. The earnings call will be the first chaired by Peter Voser, who took over as chief executive this month. Investors will be keen for further details of his sweeping cost-cutting plans, expected to include thousands of redundancies.

BP is expected to announce earnings of $2.8 billion, also down about two-thirds from a year ago but marginally up on the $2.4 billion it made in the first quarter. Goldman Sachs expects BG’s profits to have halved to $758m for the quarter. Together BG, BP and Shell will have seen profits drop $10.5 billion relative to a year ago.

TIMES ARTICLE

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