Oil majors’ $100 hangover to sink earnings

The world’s biggest oil companies, set to report their worst quarterly earnings in more than a decade, are finding their cost-cutting efforts haven’t matched the decline in crude prices the past two years.

While producers have been deferring projects, eliminating jobs and freezing salaries, the process will take three years to complete, according to Barclays’ Lydia Rainforth. 

In the meantime, profits are being hammered.

“A lot of work still needs to be done on costs,” Ms Rainforth said. 

For producers from Royal Dutch Shell to Chevron reeling under the threat of credit-rating downgrades, slashing costs is the surest way of protecting balance sheets. 

Still, reversing course is  painful after $100 oil persuaded companies to pump money into expensive areas in search of new deposits, hire more people and rent rigs and services at record rates. Productivity suffered.

Shell, Europe’s biggest oil company, had operating costs of $14.70 a barrel last year when Brent crude averaged $53.60, Barclays said last month. 

That’s more than double the $6-a-barrel cost in 2005, the last time oil averaged in the $50s. BP’s operating expense was $10.40 last year compared with $3.60 in 2005. 

After rising every year from 2010 to 2014, Shell’s costs fell 15%. BP’s dropped 19%.

That’s not been enough to counter the rout in oil prices. BP is expected to post an adjusted loss for the first time since the Gulf of Mexico oil spill in 2010, when it reports first-quarter results today. 

Shell is likely to post its weakest adjusted profit in more than a decade.

Exxon Mobil, the world’s biggest oil company, will report the lowest quarterly profit in more than two decades on Friday. 

Chevron is estimated to report a second consecutive loss the same day. 

Total’s first-quarter adjusted net income is predicted to be the lowest since 2001. 


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