Oil rivals BP and Shell will show disparity in profits due to varying strategies

Published on Saturday 30 January 2010 14:24

OIL giants BP and Shell will unveil contrasting fourth-quarter profit performances this week, with BP's more advanced efficiency programme and greater exposure to the oil price helping it to steal a march on its rival.

• Shell's Brent C oil platform in the North Sea

Partly as a result of the rising oil price, BP's Q4 "clean" profit, after excluding exceptional items, is expected to have soared to a City consensus of $4.7 billion (2.9 billion).

Shell, which is less advanced in its efficiencies programme under new chief executive Peter Voser and is more exposed to gas than BP, is seen as striking a consensus fourth-quarter profit of $2.9bn compared with $4.8bn in the corresponding period of 2008.

The oil price rose to an average $74.50 in the final quarter of 2009 compared with $55.50 in the same quarter of 2008. Andrew Whittock, energy specialist at broker Oriel Securities, said: "This disparity (in performance] is interesting because historically you would expect two companies with similar market capitalisations to produce a broadly similar amount of earnings each quarter.

"BP and Shell have been pretty close in the past, and we think they will be pretty close again over 2010 with both probably having annual earnings of about $19bn. But we think in this particular quarter the difference is that Shell is more gas-centric than BP, and gas prices are relatively lower."

Another perceived negative for British-Dutch-owned Shell is that it is has greater exposure than its British rival to downstream (refining) profit margins, which declined significantly in the final quarter.

Peter Hitchens, oil and gas analyst at Panmure Gordon, said: "Shell has a better downstream business than BP but margins have been appalling. Average margins have fallen to about $1.50 in Q4 from $3.40 in Q3 alone."

It is thought BP's performance, as well as benefiting from the higher oil price, will have been driven by strong growth in crude production and the efficiency programme chief executive Tony Hayward has piloted over the past two years.

His counterpart at Shell, Peter Voser, the group's former chief financial officer, only took over last summer and is not so far advanced in driving through efficiencies.

BP currently produces four million barrels of oil equivalent per day (BOEPD) compared with Shell's three million of BOEPD, allowing it to ride the oil price rise more aggressively.

Hitchens said: "About five years ago both companies were producing about four million BOEPD, but Shell has been in decline.

"Shell has had problems because although they have got long-term projects on the way up they are not currently offsetting the declines in its mature markets.

"They have also had problems in Nigeria which BP is not involved in."

The City is particularly interested in two big strategy meetings planned by the two oil giants in March as this week's results. BP is meeting analysts on 2 March and Shell on 16 March.