Gulf disaster to overshadow BP profit results

Published on Wednesday 20 April 2011 18:00

OIL majors Shell and BP will announce similar first-quarter profit figures this week, but the shadow of the Deepwater Horizon disaster means they will be regarded very differently by investors.

As well as the vast ecological cost of the tragedy and the damage to the company's reputation and coffers, BP's production volumes have been suffering at a time when most oil producers are cashing in on high prices.

Its profits are forecast to be more or less flat year-on year, against a tough comparison of the last quarter before the disaster in the Gulf of Mexico.

Last week, BP sued Transocean, the owner of the oil rig that leaked, and contractor Halliburton, for about $40 billion (25bn) each in damages, but the court case is likely to take years.

The claim is based on BP's estimate of its liabilities, but it could face tens of billions more in fines and penalties if it is prosecuted.

To make things worse, the British oil giant's recovery strategy of moving into new areas has also hit a stumbling block, as its attempted alliance with Russia's Rosneft is currently being blocked by an injunction from oligarchs at its TNK-BP joint venture.

BP's passage into India is likely to be easier, with the firm taking a 30 per cent stake in 23 oil and gas production-sharing contracts operated by Reliance and forming a 50:50 joint venture for the sourcing and marketing of gas in India.

Rival Royal Dutch Shell appears to be entering a growth phase and recently restated its target of a 50 to 80 per cent uplift in cash flow from operations between 2009 and 2012.

On Thursday, it is expected to beat disappointing fourth-quarter results and show its growth remains on target.

Tony Shepard, an analyst at stockbroker Charles Stanley, said: "There's still a lot of uncertainty going forward for BP, whereas Shell is going into a purple patch."

Shepard said Shell's production volumes may not show much improvement because last year was a strong comparative and this quarter it carried out maintenance work in the North Sea and Nigeria. But he added that, unlike BP, Shell should at least see the full benefit of oil prices that averaged $105 a barrel during the quarter, compared with $76 a year ago.

Both companies have also benefited from billions of pounds worth of disposals, but Shepard said it was cash flow figures that investors would be most interested in.

BP presents its results on Wednesday, and Charles Stanley has forecast profits of about $5.7bn, compared with $5.6bn a year ago. Shell is forecast to show a 20 per cent rise in earnings to some $5.8bn.