BP and Shell Report Massive Profits

Oil Giants, BP and Shell announce a combined profit of some £8 billion in the third quarter.

BP, which reports its Q3 results on Tuesday is expected to report profits of £4.2 billion, a rise of 130 per cent over the same period last year.

Shell will follow on Thursday with a figure somewhere in the £4.6 billion ballpark, which would represent a rise of about 46 per cent, the analysts have calculated.

The slow rate of falling pump prices falling at a slower rate next to tumbling crude prices could result in protests. At the forecourt, prices that were once hovering close to 120p per litre of standard unleaded, are now generally back below £1. Those are figures that will inevitably trickle through to BP’s and Shell’s fourth quarter results – but at a price.

Falling crude prices have given risen to worries about oil companies’ earnings and dividend prospects, as well as their ability to fund investment projects across the oil and gas industry.

Charles Stanley analyst Tony Shephard said he believed BP could abandon its share buyback, which is currently running at around one billion US dollars a quarter (£617m).

He added: “In 2008, capital expenditure is budgeted at $21bn (£12.9bn). Already, there are signs in the oil and gas industry that projects are being deferred or delayed.”

In light of the current uncertainty, Mr Shephard said Charles Stanley’s recommendation on both stocks had been moved from accumulate to hold.

He is looking for third quarter net income of $7bn (£4.32bn) for BP tomorrow and $8bn (£4.93bn) from Shell on Thursday.

In July, BP posted half-year profits of $13.44bn (£6.75bn) 23% ahead of the previous year – as the firm reaped the benefit of record prices. This was followed by Shell’s half-year surplus of almost £8bn.

The stock market will be looking for words of reassurance from major players Aviva and Standard Life when the pair provide trading updates.

Standard Life, which updates on Thursday, has suffered particularly heavy falls amid the recent sector sell-off.

Investors have been heading for the exit as concerns grow over the ability of insurers to weather the sharp stock market falls, as well as their exposure to corporate bonds and potentially toxic asset-backed securities.

The Financial Services Authority unnerved many when it revealed in a recent briefing note on the sector that it had found “weaknesses” in systems and controls for calculating risks with some of these products.

A raft of insurers – including Aviva – have been releasing ad hoc updates on their capital strength in an attempt to halt the share price slides, but they are still among the first to fall when the wider market is under pressure.

And only this week both Standard Life and Aviva were hit by broker downgrades. Standard Life is generally seen as being well capitalised, but HSBC noted in making its downgrade that the group may have to fight hard to maintain its position in the competitive self-invested personal pension market.

The market is forecasting Standard Life to report a 3% drop in net inflows of global life and pensions business, to £2.3bn for the nine months of the year so far, although total sales are expected to have risen 3% to £12.6bn.

Aviva, which gives its update tomorrow, has been quick to react to share falls with reassurances over capital strength and its exposure to the collapse of firms such as AIG in America, which was rescued by the US government.

However, as with its rivals, the group has so far remained tight-lipped on the thorny issue of corporate bond exposure. And as the economic outlook worsens, there are fears that firms could start to default on bonds, which may leave insurers in a tricky situation.

Quarterly subscriber numbers at broadcaster BSkyB will be closely watched on Friday for clues about demand during the economic slowdown.

In July the group reported a better-than-expected hike in net customer additions in its fourth quarter, at 92,000, taking total customers to 8.98 million.

The figure suggested hard- pressed consumers were choosing to stay in and spend more on home entertainment as the economic slowdown took hold.

But shares in the group fell sharply this week after a report from Continental Research said consumers plan to cut spending on TV channels in light of the credit crunch.

Analyst Sam Hart at Charles Stanley forecast pay-TV subscriber numbers to have increased by a net 55,000 in the first quarter of the financial year to 9.4 million.

And churn is expected to be running at 10% to 11%, in line with the management’s target.

Mr Hart said: “BSkyB is among the more defensive media companies, but concerns over regulatory issues, the consumer outlook and renegotiation of the Premier League contract in 2009 are likely to overhang the shares.”

He said management was understood to be considering a legal challenge after the Competitions Appeals Tribunal recently ruled BSkyB must reduce its stake in ITV, from 17.9% to below 7.5%.

A write-down on the value of the stake is expected after further weakness in the ITV share price.

Nightclub operator Luminar, which releases interim results on Thursday, said last month that price promotions and themed nights had helped to attract clubbers during the economic downturn.

But the firm, which owns chains including Oceana, Lava & Ignite and Liquid, said trading conditions remained tough, with half-year sales to August 28 dropping 2.4% on a like-for-like basis across its dancing club portfolio, compared with a 4.1% rise a year ago.

Its branded clubs saw comparable sales rise 2.1% but this was also significantly down on the 13.4% seen in the first half of its previous year.

Luminar said it was cutting costs to save more than £2.5m in the second half to try and help counter the slowdown in business.

Numis Securities predicts a 2% decline in like-for-like sales in the second half for the nightclub group.

Author: Jo Amey