BP, Royal Dutch Shell Profits Soar

With money flowing out of drivers’ pockets, it has to go somewhere. That somewhere is to the shareholders of the oil companies. Yesterday, BP and Royal Dutch Shell announced that they were swimming in profits for the first quarter of 2008. Both have increased their dividends.

In first quarter 2008, BP’s pre-tax profits rose 48% compared to the first quarter 2007. The company earned $6.6 billion. Over the same time, Shell increased its profits 12% to a record $7.8 billion. Shell CEO Jeroen van der Veer accounted for the strong results saying, “Good operating performance, combined with increased oil and gas prices, offset the impact of downstream conditions in the first quarter 2008.”

BP is restoring full operations at two American refineries: Texas City and Whiting. Both have been undergoing repairs. Texas City had a rather bad fire and some hurricane damage in 2005, but quite why it has taken close to 3 years to get everything in shipshape is a mystery. More defensibly, Whiting’s refinery suffered fire damage last year.

This will mean more refined petroleum products hitting the market, which might abate the recent rising prices. At the same time, it means BP will have more product to sell. This suggests that the second half of 2008 looks pretty good for BP. Yet some aren’t convinced. Robin Pagnamenta writing in The Times stated, “. . . while the 48 per cent rise in profits to $6.6bn provided good reason to be cheerful, BP's results were flattered by almost $1 billion of unexpected revenue, including a one-off $400m gain from oil and gas trading, $400m in lower costs, and $200m from tax bills in Russia that are paid with a delay. The overall results were also given a huge boost by runaway oil prices.”

The most interesting fact in Shell’s case is something Mr. van der Veer said. “We don’t understand the oil price at this stage,” he said. “The fundamentals will not justify an oil price as we see it at the moment.” Consequently, Shell is not investing in projects that will require these price levels to persist. Is that because Shell expects lower prices in the future, or because it is in no rush to add supply to such pleasant market conditions?

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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