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EARNINGS PREVIEW: Momentum Shifts From BP To Shell In 1Q

THE WALL STREET JOURNAL

19 APRIL 2010 By James Herron of DOW JONES NEWSWIRES

TAKING THE PULSE: After many quarters of lagging its rival BP PLC (BP), Royal Dutch Shell PLC (RDSB.LN) is expected to regain some momentum in this year’s first quarter.

Improvements in many of Shell’s key markets and a long-awaited return to oil and gas output growth should paint a more positive picture for Shell after a bad set of fourth-quarter results, analysts say.

“[This] could be a more important quarter for Shell. Its above-average exposure to European gas seasonality given the cold weather, to crude-linked gas prices and refining should help start to restore the market’s confidence in its earnings power,” said Collins Stewart in a research note.

However, the company still has a lot of ground to make up and will lag BP in overall profitability, albeit to a lesser extent than previously.

The recovery in the oil price will be the main driver of profit growth for European integrated oil companies, which on average will see their first-quarter profits rise 31% year-on-year, said ING analyst Jason Kenney.

COMPANIES TO WATCH:

Royal Dutch Shell PLC (RDSB.LN) – Wednesday, April 28

MARKET EXPECTATIONS: “We see quarter-on-quarter growth in Shell’s earnings of close to 50%, versus 10% for BP,” says Collins Stewart. This means Shell earnings will only lag BP by around 15%, compared with an average of 40% in the second half of 2009, it said. The biggest turnaround will be in refining, where Shell is likely to post a $600 million profit, versus a $400 million loss last quarter.

MAIN FOCUS: The bulk of Shell’s corporate restructuring has been implemented and analysts will be looking for any signal from management about how this will affect performance this year. Indicators of progress on key gas projects in Qatar, set to drive output growth over the next two years, will also be important. “The big question is whether management can deliver the next stage on time and on budget,” said Brewin Dolphin analyst Iain Armstrong.

BP PLC (BP) – Tuesday, April 27

MARKET EXPECTATIONS: BP put in a strong operational performance in the fourth quarter and analysts expect a repeat of this in the first quarter, setting the company up to make the most of the 72% rise in the price of Brent crude. ING’s Kenney expects BP’s net profit to be up more than 90%. The company’s oil and gas output should be down around 0.2%, in line with the company’s forecast, he said.

MAIN FOCUS: BP delivered impressive savings in 2009, cutting cash costs by around $4 billion thanks to efficiencies and currency effects. The company aims to carry this momentum forward, reducing costs to 2004 levels within two to three years. Analysts will be looking for evidence that this target is achievable now that much of the low-hanging fruit has been plucked.

BG Group PLC (BG.LN) – Thursday, April 29

MARKET EXPECTATIONS: Gas-focused BG Group will struggle a little more than BP and Shell, ING’s Kenney. He expects a decline in profit of around 8%. This is because U.K. gas prices actually fell by almost a quarter compared with a year ago and U.S. prices rose just 5%. He sees BG’s liquefied natural gas earnings at $494 million versus $892 million a year ago. “I don’t think the gas momentum is as positive for BG as some had hoped,” he said.

MAIN FOCUS: BG Group and its partners in the Karachaganak gas and condensate project in Kazakhstan have been hit by a flurry of charges over labor violations, environmental damage and is accused of making illegal earnings by over-producing from the field. This is widely seen as the Kazakh government pressuring the consortium to sell a stake in Karachaganak to national oil company KazMunaiGas. The market will be watching for any signal that this situation could be resolved.

Company Web sites: http://www.bg-group.com

http://www.bp.com

http://www.shell.com

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

WSJ ARTICLE

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