Analysts predict BP will be hit the hardest, putting further pressure on chief executive, Bob Dudley, as he tries to steer the company back to full health amid continuing fallout from the Deepwater Horizon accident.
A consensus of 22 analysts expect BP’s underlying replacement “costs profits” – an oil industry accounting measure that incorporates fluctuations in the price of oil – to be down to $1.3bn (£850m) from $3.2bn in the first three months of 2014.
“There will be a huge drop in earnings for all the large integrated oil companies but especially BP. It will be the worst set of results for everyone since 2009,” said Fadel Gheit, veteran analyst with the Oppenheimer brokerage in New York.
Iain Armstrong, analyst with investment manager Brewin Dolphin in London, said BP would be most exposed to the particularly large fall in US natural gas prices slightly tempered by stronger refining margins.
“Upstream (exploration and production) earnings will be most affected, although there could be the initial positive impact of the planned cuts in capital expenditure and the ongoing layoff programme,” said Armstrong.
Gheit believes BP income could fall by as much as 70% while Shell will be down by 68% and Exxon Mobil by 67%. But he also predicts losses for the second tier of oil companies such as Anadarko Petroleum, Apache Corporation and ConocoPhillips.
Gheit believes the “devastating” losses of the oil sector will increase the likelihood of more merger and acquisition activity following the $70bn takeover plan unveiled earlier this month by Shell on BG.
“It is a dog-eat-dog world out there now. Basically all companies are potential takeover targets. Tony Hayward [the ex-BP boss now running Genel Energy] said he is looking for acquisitions but I have news for him that his own company is being looked at.”
Gheit believes US domestic oil and gas producers will be the hardest hit with financial losses continuing throughout the year. “If there is not a bounce back (in oil prices) they could be even worse next year because they will not be so protected by a hedging strategy.”
The oil price over the first quarter of the financial year is roughly half the level that it was during the same period of 2014. It has since recovered slightly, with Brent blend last Friday trading at $65, 40% lower than the same time last year.
BG will not report its financial results until 8 May but the annual general meeting three days earlier will see lively debate over management’s decision to accept the takeover offer from Shell.
All the oil companies have been slashing their capital expenditure and many have been laying off staff causing enormous concern in offshore centres such as Aberdeen. Last Thursday BP announced its latest sell-off, a major North Sea pipeline system for £320m.
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