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Lower oil prices and weaker refining margins bludgeon majors' profits

The majors all saw their results take a hit as lower crude prices and weak refinery margins ate into second-quarter profits

Shell, BP, ExxonMobil, Total and Chevron all booked sharply lower earnings, due in part to a 5% year-on-year drop in Brent's price, which averaged $102 per barrel in the quarter. 

All saw costs and capital expenditure rise, squeezing dividends. Only French company Total reported an increase in quarterly production, its first for three years.

Shell's earnings took the hardest hit, plunging by 60% year-on-year. Its second quarter earnings on a current cost of supplies basis - the equivalent of a net profit figure - were $2.4bn, down from $6bn in the same period last year. Shell blamed a deteriorating operating environment in Nigeria, higher costs at its US shale oil and gas operations and a $2.2bn deferred tax charge for the drop in income. 

Shell's cash flow from operating activities for the quarter came in at $12.4bn, down from $13.3bn in the same quarter last year. Chief executive Peter Voser admitted the results were "clearly disappointing".  The company saw its Nigerian output drop by around 40% - about 100,000 barrels a day (b/d) - during the quarter, costing it about $250m. As well as pipeline sabotage and bunkering, production was disrupted by a dispute at the Nigeria Liquefied Natural Gas facility, in which the company is a partner. Voser said Shell was set to review its Nigerian operations. The company is also taking a close look at its North American exploration and production portfolio, with an eye to divesting some assets. 

Shell's production for the quarter dropped about 1% year-on-year to just over 3m b/d.

BP, meanwhile, said its underlying replacement cost profit (RPC), its profit in real terms, for the quarter fell 25% year-on-year to $2.7bn. Bob Dudley, BP's chief executive, blamed lower oil prices, a 10% higher tax rate year-on-year and lower income from the company's Russian assets for the drop.

Oil production

The company said its earnings from Russia fell because of depreciation of the ruble, adding the country's oil export duty also dented its profits. The UK supermajor sold its stake in the TNK-BP joint venture in March in exchange for a 19.75% interest in state-owned Rosneft. BP said its share of Rosneft's earnings and production in the second quarter came in at $218m and 945,000 barrels of oil equivalent per day (boe/d), respectively. In the same quarter last year, BP's stake in TNK-BP brought in earnings of $452m and more than 1m boe/d in output.

BP's oil and gas production in all regions apart from Russia grew by 4.4% year-on-year as output from projects in Angola and Norway ramped up. The company's total output, excluding Russia, was 2.24m boe/d. This was down 1.5% year-on-year, mostly due to asset divestments. BP said its third-quarter production is expected to be even lower because of planned seasonal maintenance and ongoing asset sales to raise funds to cover pay-outs stemming from the 2010 Deepwater Horizon disaster.

Chevron's second-quarter earnings also dropped, totalling $5.4bn, compared with $7.2bn in the year-earlier quarter. Chief executive John Watson said earnings were down because of lower oil prices and repair and maintenance  at its US refineries.

Upstream and downstream earnings

Chevron said its sales price per barrel of crude oil averaged $92 in the second quarter, down from $97/b in the same period last year. This was, however, partially offset by higher US natural gas prices, the company said. Chevron's average sales price of natural gas was $3.78 per million British thermal units (Btu), compared with $2.17/ m Btu in last year's second quarter.

Chevron's production fell 2% year-on-year to 2.58m boe/d in the second quarter of 2013. Project ramp-ups in the US and the start-up of Angola Liquefied Natural Gas (LNG) were offset by natural field declines.

ExxonMobil also blamed weaker margins, mainly in refining, for the dent in its quarterly earnings. The supermajor saw its second-quarter earnings tumble 57% year-on-year  to $6.9bn, while its earnings for the first half of the year were down 35% to $16.4bn. Lower output because of planned refinery turnaround and maintenance, as well as refinery margins, contributed to the drop. Its oil and gas production fell 1.9%, averaging 4.074m boe/d. Profit from its refining business fell from the $6.6bn posted in the year-earlier quarter to $396bn. Last year, ExxonMobil booked a net gain of $7.5bn from asset divestments and tax-related items, and when this is taken into account its earnings were down by 19%, it said. 

France's Total reported a 3% drop in second-quarter adjusted net profit to €2.7bn ($3.57bn), and a 4% year-on-year fall in revenue to €47bn. However, the restart of the Elgin/Franklin field, in the UK sector of the North Sea, as well as the start-up of its Angola LNG development helped the company book a 1% rise in production to 2.29m boe/d, its first quarterly output rise in three years. However, as with its peers, refining margins were down from $26.90 a tonne (/t) in the year-ago quarter to $24.10/y in the 2013 period. Total is restructuring its refining segment.

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