A Shell gas stationMAXIM MARMUR
Exxon Mobil Corp. , Royal Dutch Shell PLC and Eni SpA dashed hopes for an imminent turnaround for the oil industry, saying sluggish economic recovery was weighing on energy demand and prices.
The three posted big drops in quarterly earnings on Thursday after crude oil and natural gas prices plummeted over the past year and refining margins were squeezed.
Exxon, the world's largest oil company by market value, said net income fell a slightly-larger-than-expected 68 per cent in the third quarter compared with the same period in 2008, to $4.73-billion (U.S.).
Shell, Europe's largest oil company, said it was cutting 5,000 jobs after net profit dropped 73 per cent in the quarter to $2.99-billion.
Italy's Eni said it was cutting its production forecast for the year due to lower gas demand and project deferrals aimed at saving cash. It unveiled a 58 per cent drop in net profit.
The results and pessimistic outlook contrasted with London-based BP PLC 's third-quarter earnings on Tuesday, which, though lower, smashed forecasts by 50 per cent, lifting sector shares on hopes the industry would weather the economic slump better than expected.
Shell and Eni's cautious comments echo worries in recent days about the fragility of the economic recovery, after weak U.S. new home sales data which also weighed on crude prices.
"We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain and we are not expecting a quick recovery," Shell chief executive officer Peter Voser said in a statement.
Analysts at Citigroup said Shell's results painted a disappointing picture and that Eni's comments would boost worries about its ability to increase production.
And Exxon told investors it expects to cut its 2009 budget. The U.S. oil major initially forecast 2009 spending of $29-billion. But now, citing project delays and cost savings, it sees a budget of about $26-billion, a possible outcome of the uncertain market.
"They [Exxon]are investing in a downturn, which is good," Tina Vital, energy equity analyst at Standard and Poor's, said. "The reduction is probably just due to the market conditions. It's still an enormous amount of money."
U.S. independents Apache Corp. , Williams Cos. Inc. and Noble Energy Inc. also reported hefty declines in third-quarter profits on Thursday as lower commodity prices took a toll.
But both Nobel and Williams topped analysts' expectations, sending their shares higher.
Oil companies are tackling the downturn by slashing costs, which doubled as oil prices soared between 2004 and 2008.
Mr. Voser said Shell's restructuring program, launched just before he took the company's helm in July, had lowered costs by $1-billion in the first nine months of 2009, excluding $2.5-billion in savings related to foreign exchange moves.
BP said earlier this week that it had achieved savings of $3-billion, including currency benefits, and was now targeting another $1-billion by year-end.
Operationally, the companies failed to shine, with Shell's oil and gas production in the quarter flat compared with the same period in 2008 at 2.93 million barrels of oil equivalent per day (boepd), while Eni's output dropped 5 per cent.
Shell CEO Simon Henry refused to promise a return to output growth in 2010, despite a downward trajectory for this year and a target of 2 per cent to 3 per cent average annual growth between 2009 and 2012.
Exxon said output rose 3 per cent from the third quarter of 2008 after falling in recent years.
The output performance contrasts with an 18 per cent rise in output at Chinese oil company CNOOC in the quarter compared with a year.
Western oil companies have faced stiff competition for oil fields in Africa, Latin America and Asia from Chinese and Indian state-controlled oil companies, which must secure energy resources for their fast-growing economies.
In addition to a 40 per cent drop in Brent crude prices and a 65 per cent drop in U.K. and U.S. gas prices, the companies' earnings were hit by a collapse in refining margins.
Mr. Henry warned that the refining environment was unlikely to improve in the short or medium term, echoing comments from the CEO of Finnish refiner Neste Oil Corp., which also unveiled a big drop in profits.
Analysts expect oil companies to remain focused on paring overheads.
"We believe we will see further cost reduction over the next 12 to 18 months well in excess of what we have seen," said Gordon Gray, oil analyst at brokerage Collins Stewart.