The tribulations of extracting mega-profits from land and sea, and cautious optimism at ABB.
BP and Shell have been hitting the headlines for all the wrong reasons, following the revelation that EU regulators raided their offices on 14 May as part of an investigation into price-rigging. Norway’s Statoil and price reporting agency Platts are also under scrutiny.An investigation is just that, nothing more. But both energy giants have faced media criticism for making huge profits as fuel costs rise.
Quarter one is a good period for assessing the health of an oil major, as maintenance work is carried out in later months, with shutdowns that can skew results. For 1Q13, Shell reported profits up 3.5 per cent to $7.95bn against the same quarter in 2012, while BP’s earnings slipped to $4.2bn from $4.7bn for the same periods - a notably smaller fall than analysts had expected.
Beyond these headline figures, there are many business risks involved in the extraction of oil and gas, any one of which can have a major impact on corporate fortunes. In BP’s case, the company has been involved in major asset disposals that are shrinking its overall size - a move prompted by the need to raise cash to deal with claims arising from the 2010 Deepwater Horizon oil rig spillage in the Gulf of Mexico.
Most dramatically, BP has sold its half of the Russian oil and gas joint venture company TNK-BP to gas giant Rosneft for $55bn. But such sell-offs in the wake of the Deepwater Horizon disaster have, say BP executives, provided the group with an opportunity to remake itself into a more focused corporation that pursues higher-margin opportunities.
Over at Royal Dutch Shell, the Anglo-Dutch giant recently won praise from Prime Minister David Cameron for beating French rival Total to win a multi-billion deal with the Abu Dhabi National Oil Company to develop a gas field in the United Arab Emirates. Shell says the 30-year project will require sophisticated technology to deal with the poisonous “sour gas” that will be released.
But Shell has its own problems, too. Earlier this year it said it was shelving its plan to drill for oil off the north Alaskan coast, having already spent a reported $5bn on the venture. As well as the huge costs involved in pursuing such projects, the company would face massive opposition from environmental campaigners and risk considerable reputational damage.
And now the directors are tasked with finding a new CEO after Peter Voser announced this month that he would be stepping down in the first half of 2014. During his four-year tenure, Shell showed it could be innovative - it made huge investments in Brazilian biofuels and moved ahead with a floating LNG plant in Australia.
But for the long term, what investors in both oil giants may be wondering is whether these two supertanker companies will be nimble enough to anticipate and develop innovative technologies that will keep ahead of changes in energy needs.
Meanwhile, though, there is that EU investigation to worry about.