Low energy prices hurt oil firms

AMSTERDAM /MADRID - The Associated Press

Drivers fill their cars with gas at a self-service gas station in the South Korean capital of Seoul. The sharp fall in global oil prices accompanies a decline in sales of large energy companies, according to figures released yesterday by Shell and Repsol. EPA photo

Shares in Royal Dutch Shell lost yesterday after its second quarter earnings showed a greater than expected decline in profits, due mostly to lower oil prices.

The company’s “current cost of supplies” earnings - a figure that strips out the impact of swings in the price of oil between its production and sale - was $6 billion (4.94 billion euros), compared with $8 billion in the second quarter a year ago, the company said yesterday.

 “Our profits have fallen with energy prices,” said Chief Executive Peter Voser. Net profit fell 53 percent to $4.06 billion from $8.66 billion: in 2011 the company booked $1.44 billion worth of asset sales. Production rose 1.9 percent to 3.103 barrels of oil per day from a year ago, but was down from the previous quarter as several large Shell facilities were off-line for maintenance during the quarter.

Global oil prices fall more than 40 percent

The company’s sales fell to $117.1 billion from $121.2 billion a year ago.

The main reason for the fall was lower oil prices: prices are down more than 40 percent from the second quarter of 2011. At Shell’s production arm, earnings fell 23 percent to $4.69 billion from $6.06 billion.

The company’s shares were down 3.7 percent at ?26.875 in Amsterdam.

“Maintenance and outage issues have put pressure on the upstream business, whilst the deterioration in the oil price of late has weakened profitability,” said analyst Keith Bowman of Hargreaves Landsdown in London. “At a time when investors are looking towards blue chip reliability, the disappointment contained in the headline figures is palpable.” He said Shell remains his favorite pick in the sector.

At Shell’s “downstream” operations, which include refining and chemical sales, the company’s performance improved 20 percent to $1.3 billion, excluding the impact of asset sales.

Spanish energy company Repsol, meanwhile, says its second quarter net profits fell 45 percent from the same period of 2011 to 274 million euros ($332 million), still due in the effect of lower oil prices on the value of its inventories.

Repsol said yesterday this figure does not include earnings at YPF, its former Argentine unit nationalized by the Argentine government in May, Repsol said that for the first half of the year its profits were down 14.6 percent to 903 million euros. It calculated the effect of oil prices on its inventory value at 328 million euros. Repsol said that, measured at current cost of supply and excluding the inventory effect, net income for the first half of 2012 rose 3.1 percent to 894 million euros.
Repsol shares were up about 0.4 percent at 11 euros in early trading.

Oil prices fell yesterday in Asia after U.S. crude inventories swelled and a slowdown in South Korea’s economy underlined that growth in demand for fuel could remain subdued. Benchmark crude for September delivery was down 60 cents at $88.37 a barrel at midafternoon Bangkok time in electronic trading on the New York Mercantile Exchange. The contract added 47 cents to settle at $88.97 in New York on July 25.