The Sunday Herald (Scotland): BP bucks poor reserves trend despite demand: “The achievement is in stark contrast to Shell, which has reduced its reserve estimates by almost one-third to less than 13 billion barrels and has admitted that it has been replacing only 15% to 25% of the oil it is pumping from the ground. The reserves are seen as a key indicator to future profitability and show why BP still enjoys a premium stock market rating over Shell…” (ShellNews.net) 6 Feb 05
By John Phelps and Valerie Darroch
Oil giant BP will signal the parting of the ways with arch-rival Shell this week when chief executive Lord Browne is set to disclose that the group managed to increase its bulging reserve portfolio last year despite buoyant worldwide demand for its product.
Industry experts believe that the British giant will underline its future prospects with news of a modest increase in its proven reserves to the equivalent of around 18.5 billion barrels of oil after pumping out approaching four million barrels a day last year.
The achievement is in stark contrast to Shell, which has reduced its reserve estimates by almost one-third to less than 13 billion barrels and has admitted that it has been replacing only 15% to 25% of the oil it is pumping from the ground.
The reserves are seen as a key indicator to future profitability and show why BP still enjoys a premium stock market rating over Shell despite a recent surge in the latter’s shares for technical reasons ahead of its merger with Royal Dutch.
While most believe BP will be doing well to equal Shell’s British record of £10 billion net income when it reports on Tuesday, it is valued in the stock market at around £115bn, compared with a £45.5bn valuation placed on the Anglo-Dutch company.
The gushing profits were achieved on the back of the soaring oil price, which pushed through the $50 a barrel barrier last year as a result of concerns over the Middle East and record demand from China.
Analysts say the price is likely to continue at traditionally high levels throughout the spring, at least following last week’s decision by the 11 Opec countries to peg production to 27 million barrels a day.
The huge figures involved have led to some calls for the government to introduce a windfall tax for the first time since 1997. MP Martin O’Neill, chairman of a parliamentary committee looking into gas prices, recently stated that he was “not against” a tax to help consumers. “Shell’s profits are beyond the dreams of avarice,” he said.
But industry observers believe that the multi-national oil giants have the perfect response.
“These companies can make their base anywhere they like,” said Angus McPhail at ING Financial. “If they feel that they are unfairly treated under one tax regime, they could simply up sticks and move their headquarters to somewhere which is better suited to their needs.”
Both BP and Shell argue that any changes to current taxation could jeopardise thousands of jobs dependant on their North Sea operations.
Lord Browne will hammer home the point on Tuesday when he confirms plans to invest £1.1bn in the North Sea this year, much of it ear-marked for the huge Rhum gas field which has estimated reserves of up to 800 million cubic feet.
He will also emphasise BP’s importance to outside cont ractors and will confirm that it is in the process of tendering for more than £200 million of long-term contracts covering areas such as sub-sea construction, inspection and maintenance.
Despite its huge profits, analysts say BP would have been in a position to report still higher returns but for the effects of Hurricane Ivan on American production and a costly fire in Egypt.
The figures will also include a £1.2bn charge to cover a write down in the value of the group’s olefin and derivatives petrochemical unit ahead of its sale. But brokers will expect news of another buoyant performance from the Russian joint venture TNK-BP, which has had a key impact on both profits and reserves.
Meanwhile, Aberdeen-based Peak Group forecasts a 50% jump in turnover in 2005 as a result of an upturn in exploration and appraisal drilling in the North Sea and it says daily rental rates for mobile rigs have more than doubled in the last six months.
Peak, a privately-owned company which employs some 80 people directly, had turnover of about £20m in 2004 and company director Bob Lyons said the firm expects to achieve a 50% increase this year.
A recent report from the UK Offshore Operators Association (UKOOA) said that the number of exploration and appraisal wells drilled in the UK Continental Shelf (UKCS) rose to 63 in 2004 from 45 in 2003.
It marks the largest number drilled since 1998 and UKOOA forecasts a further 10% increase in 2005 to 70 wells.
http://www.sundayherald.com/47538