This week’s quarterly reports from listed oil companies will likely see strong focus on BP and Shell – both for their own company-specific issues and also for indications of the effect of the crude oil price slump.
Brent crude prices nearly halved from this time last year, bottoming out at around $50-barrel in December 2014, although they have since recovered to around £65-barrel this month.
Analysts forecast that BP and Shell will this week report a collapse in first-quarter profits of around 60% compared to the same period last year, underlining the financial damage being inflicted by low oil and gas prices.
Following the £47 billion mega-merger announced last month by Shell and BG Group, BP is also being sucked into takeover speculation.
BP has sold $50 billion worth of assets to pay off the damages caused by the Gulf of Mexico oil blow-out and could still face billions in additional claims. The perceived weakness has sparked speculation that a cash-rich company like ExxonMobil could now attempt to acquire BP.
The London-based Financial Times reported that Britain’s outgoing Conservative government has told BP that it wants the company to remain a ‘British industrial champion’ and it would oppose any takeover of the oil producer.
The message follows the deal to acquire rival producer BG by Royal Dutch Shell, which has sparked speculation of a larger wave of consolidation similar to the one at the end of 1990s during another oil price decline.
British officials have said the government would be “sceptical” about any takeover – even if it involves Royal Dutch Shell – because it wants the country to have two big global oil companies, the FT reported.
Investec Securities analyst Neill Morton commented: “This is set to the most important Q1 results season for some time.
“It will allow the market to calibrate full-year earnings expectations at $55-barrell oil. Results are already expected to be weak, but wide consensus ranges attest to market uncertainty as to exactly how weak.
“With a number of (temporary) mitigating factors, we see potential upside in the Q1 numbers, but would caution against getting carried away.
“In a weak first quarter. Brent averaged $55-barrel in Q1 – half the level of a year ago. In aggregate, we forecast sector net income to fall by 57% yoy and by 23% versus Q4 (when Brent averaged $77-barrel.)
“The Q1 earnings season will give the market its first glimpse of life at these much lower oil prices. BG’s results (and cash flow) will be closely watched in light of the proposed takeover. We remain surprised that BG still trades at an 11% discount to the merger terms, given limited regulatory and/or asset pre-emption risk, and expected Shell shareholder approval.”