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Big oil sees profits slump as prices and production fall

Major oil players saw lower oil and gas prices, coupled with lower production, eat into their third-quarter profits

Brent crude prices have fallen by around $10 dollars a barrel since the start of the year, trading at around $110/b at the end of September. US natural gas prices have traded well below levels seen in recent years at less than $3/'000 cf for most of the year.

US supermajor Chevron saw the sharpest fall in profits reporting third-quarter net income of $5.3 billion, down more than 30% from $7.8bn book in the same quarter last year. Profits were driven lower by its downstream unit, which saw earnings come in at around around half its 2011 level at $689m.

Despite the sharp fall in earnings, Chevron chief executive John Watson said the results were solid, especially in a climate of lower oil and natural gas prices and reduced output from both planned maintenance and unplanned environmental hazards.

ExxonMobil saw its third quarter earnings fall by 7.3% year-on-year to $9.57bn. Lower oil and gas prices sent earnings in the company’s upstream business down nearly 30% from third quarter 2011 to $5.97bn. However, a strong performance in the downstream segment helped buoy earnings. The downstream business reported earnings of $3.19bn, more than double the earnings reported from a year earlier.

BP saw its shares rise after reporting an increase in earnings from the previous quarter. But its replacement cost profit (RPC)— its profit in real terms – of $4.7bn was down from $5.3bn in the third quarter of last year. Losses from the 2010 Macondo disaster continue to weigh on the company. BP’s total RPC of $9.9bn for the first nine months of this year are down by almost half from last year.

Other companies also saw profits decline. Shell’s third-quarter earnings were down by 15% year-on-year to $6.1bn. ConocoPhillips, which is transitioning from an integrated major to an independent exploration and production company after spinning off its downstream unit in April this year, reported revenue of $1.8bn, down from $2.6bn the year before.

France’s Total was the exception, however, reporting a 20% rise year-on-year in net income to €3.3bn ($4.6bn). The bulk of this came from an increase of more than 50% in its refining margins, which helped overcome downtime at its Normandy and Antwerp units. Total said its refining margins soared on lower Brent prices, which made oil products more profitable, and on higher demand for products in the US.

Total’s asset disposal programme, which has included the sale of some of its Nigerian and UK assets, also boosted its bottom line. So far this year, Total has raised $5bn from sales.

Declining output also contributed to lower earnings.

Chevron’s third-quarter production fell by around 100,000 barrels of oil equivalent a day (boe/d) to 2.5m boe/d. Watson said that despite output increases from projects in Thailand, Nigeria and the US, these gains were more than offset by autumn seasonal refinery maintenance, natural field declines and weather-related shut-ins in the Gulf of Mexico.

Shell reported an extra 163,000 boe/d of production from new start-ups, such as the Pluto liquefied natural gas project in Australia, as well as increased production at its Pearl gas-to-liquids project in Qatar. However, these gains were offset by hurricane related shut-ins in the Gulf of Mexico, security issues in Nigeria and its divestment programme, which caused Shell's total output to fall by around 1% year-on-year to 2.98m boe/d.

Total’s production dropped 2% in the quarter to 2.3m boe/d. Total attributed this to maintenance and mature field declines, as well as the shut-on of the Elgin-Franklin platform following a blowout. Total's liquids output rose by 4%, boosted by the start up of the Usan field offshore Nigeria and the Halfaya field in Iraq.

ExxonMobil, meanwhile, reported a 7.5% drop in output, from 4.28m boe/d in the third quarter of 2011 to 3.96m boe/d this year. Project ramp-ups in Angola and Nigeria were not enough to overcome field declines elsewhere.

Asset disposal programmes hit production at both ConocoPhillips and BP. ConocoPhillips's production decline of 40,000 boe/d compared to third quarter 2011 was due mainly to asset disposals, it said. Its unconventional gas assets in North America added over 100,000 boe/d to its production in the quarter, but it was not enough to offset production lost through asset sales. The company has notched up $2.1bn in sales so far this year as part of a plan to sell $8bn to $10bn worth of assets by the end of 2013.

BP’s production for the quarter was 2.3m boe/d, 3% lower than last year as its $38bn divestment programme continues to weigh on output. BP said it expects its full -ear production to fall by around 120,000 boe/d year-on-year due to divestments .

All the majors said they expect oil and gas production to increase in the fourth quarter of 2012 following the end of the seasonal refinery maintenance period and as Gulf of Mexico production shut in by Hurricane Isaac comes back online.

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