Analysis - Majors face lower profits
London/Houston, 12 October (Argus) — Lower oil prices and stubbornly weak US natural gas prices against a backdrop of production growth constraints are expected to cap the majors' third-quarter profits.
Atlantic basin crude benchmark North Sea Dated was 3pc lower in the third quarter than a year earlier at under $110/bl. US natural gas prices were more than 30pc lower on the year.
Chevron expects profits to be substantially lower than the $7.8bn it made in the third quarter last year. The firm's average realised crude price in July and August was almost $6/bl lower than in the third quarter last year. Chevron's July-August output fell by over 80,000 b/d of oil equivalent (boe/d) from the third quarter of 2011, to 2.52mn boe/d.
Planned maintenance in the UK and Kazakhstan contributed to a 59,000 boe/d drop in production outside the US. And Chevron's US output fell by 22,000 boe/d largely because of Hurricane Isaac, which closed 95pc of crude output in the US Gulf of Mexico at the end of August. The EIA estimates that the hurricane cut US Gulf crude production by 220,000 b/d in August and by 200,000 b/d in September.
BP is the largest producer in the US Gulf, which accounted for around 8pc of its global output last year. The company had expected a boost in the region from restarting the Atlantis and Mad Dog fields in early August, after heavy maintenance there in the second quarter. Isaac wiped out some of those gains, although new project start-ups in the US Gulf, Angola and Egypt this year helped offset the hurricane's impact on output. But BP's third-quarter production outside Russia is unlikely to increase from a year earlier, even excluding the impact of Isaac, because of its post-Macondo divestment programme and North Sea maintenance.
ExxonMobil was less affected by Isaac, and the firm's crude output was boosted by the start-up of the Kizomba satellites project offshore Angola in July. But low US gas prices highlighted its much heavier exposure to the sector compared with most of its peers.
Shell has grown its production more than the other majors this year, following the start-up of three core projects last year. The expansion of the Scotford oil sands upgrader in Canada and the Qatargas 4 LNG and Pearl gas-to-liquids projects in Qatar contributed 360,000 boe/d to Shell's output in the first and second quarters. Production from these projects is expected at a similar level in the third quarter. Shell's results will be further boosted by a dividend payment from one of its LNG joint ventures being deferred to the third quarter from the second.
But Shell expects to book a $300mn-350mn net charge related to well abandonment costs in the UK. BP similarly expects a one-off charge of $250mn-300mn in the third quarter related to UK upstream tax changes.
Total's third-quarter output benefited from start-ups earlier in the year in Iraq, Nigeria, Thailand and the UK. But security issues in Yemen, a lack of Syrian output and the shutdown of the North Sea Elgin-Franklin complex because of a gas leak continue to constrain the firm's production.
Refining margins were stronger in the third quarter, with BP's generic global refining marker margin hitting its highest level since the second quarter of 2008, at $19.50/bl. But not all of the majors could take full advantage of the improved downstream environment.
Shell had less available downstream capacity than a year earlier because of divestments and higher planned maintenance. Total began maintenance at its 351,000 b/d Gonfreville, France, refinery in September. Chevron's crude runs in the US were 7pc lower in July-August than in the third quarter of 2011, mainly because of an early August fire at its 225,000 b/d Richmond, California, plant.
And Hurricane Isaac caused widespread disruption to refinery operations in the Gulf coast region. Chevron's 330,000 b/d Pascagoula, Mississippi, refinery and plants in Louisiana, including ExxonMobil's 190,000 b/d Chalmette and 500,000 b/d Baton Rouge refineries and Shell's 225,000 b/d Norco and Convent facilities, were among those affected.
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