The Observer: Oil prices fuel record profits for BP and Shell: “Shell chief executive Jeroen van der Veer is under pressure from investors following revelations of $10bn cost overruns on its Sakhalin-2 project off the east coast of Russia. Analysts are concerned about any further slips on major projects. One broker said: 'Several of our clients have expressed their doubts about Shell's performance. They are looking for no surprises on Thursday.”: Sunday 24 July 2005

Supermajors cash in on cost of crude, but investors keep pressure up

Oliver Morgan

Sunday July 24, 2005

Oil supermajors BP and Shell will this week report record profits on the back of sky high oil prices and strong margins at refineries.

BP's chief executive, Lord Browne, is expected to unveil a net income of some $5.5 billion, more than 35 per cent up on the same time last year, while Shell is pencilled in for $5.3bn, a climb of a quarter. Analysts indicate year-end figures for BP could breach $20bn for the first time.

Record profits have been boosted by oil prices close to 45 per cent higher throughout the second quarter of 2005 than last year. Brent crude averaged $52 a barrel, compared with $36 in 2004. It was also up $4.50 on the first quarter of this year.

BP has impressed analysts with its production performance, which has left competitors behind. It pumped 4.1m barrels a day, an increase of 3.5 per cent over 2004, while most other companies were down. Shell's production in the quarter was 3.4m barrels a day, down 4 per cent on 2004.

BP is expected to continue with a programme of share buy backs, which have totalled $4bn in the year so far. However, record profits will not guarantee a problem-free round of presentations, with questions still hanging over Shell's exploration and production operations.

Shell chief executive Jeroen van der Veer is under pressure from investors following revelations of $10bn cost overruns on its Sakhalin-2 project off the east coast of Russia. Analysts are concerned about any further slips on major projects.

One broker said: 'Several of our clients have expressed their doubts about Shell's performance. They are looking for no surprises on Thursday.'

Meanwhile, BP boss Browne will have to tell the market how much it is setting aside to cover the explosion at its Texas City refinery in March. The provision could be as much as $700m.

Gas group BG is also expected to post a strong performance, with earnings climbing 42 per cent to £273m.

The outlook for the remainder of the year is strong, with analysts indicating that oil prices have started the third quarter of the year higher than in the second quarter.

http://observer.guardian.co.uk/business/story/0,,1534880,00.html

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