BP BP Plc

By Selina Williams 

LONDON -- After two years of spending cuts, canceled projects and tens of thousands of layoffs, Europe's biggest energy companies are still struggling to cope with a prolonged oil-price rout.

Royal Dutch Shell PLC Thursday reported a 93% drop in profit and rocketing debt for its most recent quarter, sending shares down sharply. Smaller peers such as France's Total SA and Spain's Repsol SA also booked lower profits Thursday, while rivals BP PLC and Statoil ASA announced similarly grim results earlier in the week.

The sector's second quarter results show how difficult it is for companies built to spend billions of dollars pumping $100-a-barrel oil to adapt to a world where oil now sells for less than half that. Since mid-2014, the oil price has dropped by some 60%.

"Lower oil prices do continue to be a significant challenge across the business," Shell Chief Executive Ben Van Beurden said Thursday on a conference call.

Shell's shares fell more than 4% after the Anglo-Dutch oil giant reported declines across its business. Weaker oil prices, poor refinery profits and high charges stemming from Shell's $54 billion acquisition of BG Group PLC, which completed in February, all dragged down results.

While the BG deal helped boost Shell's oil and natural-gas production by nearly a third in the second quarter from a year earlier, the prices it received for its products were a third lower. Shell's profit on a current-cost-of supplies basis -- a measure similar to the net income that U.S. oil companies report -- was $239 million, down from $3.36 billion a year earlier.

Mr. Van Beurden has staked his reputation on the BG deal, which brought more access to liquefied natural gas and deep-water oil projects. But the global LNG market is currently oversupplied and Shell, which earlier this month deferred making a decision on whether to build a major new LNG development in Canada, pulled back from one in the U.S. on Thursday. The company said it would delay deciding on whether to construct a giant new export plant in Lake Charles, Louisiana, citing affordability amid low oil and gas prices.

Shell's debt has also ballooned to worrying levels following the BG acquisition, analysts said. Its net debt as of June 30 was $75.1 billion, compared with $25.96 billion in the same period a year earlier. Gearing, a measure of a company's debt-to-equity, rose to 28.1% at the end of the second quarter, nearing Shell's stated maximum level of 30%.

"It may go up before it comes down again," Shell's Chief Financial Officer Simon Henry said, blaming lower oil prices.

Energy companies suffering from the oil-price drop from $115-per-barrel in mid-2014 to around $27 in January appeared set for relief last quarter, when oil prices moved up toward $50.

But even with the rally, oil companies still struggled in the last quarter.

And now the recovery appears to have stalled, thanks to a gasoline glut weighing on the refining sector and depressing the demand for oil. Refining had until recently provided a cushion that helped to offset weaker earnings from sales of crude and natural gas.

Earlier this week, BP said profit margins at its refineries fell to their lowest levels since 2010. It came as the British oil giant reported its third straight quarterly loss. BP posted a $2.25 billion net loss for its latest quarter citing the oil price slump and a hefty charge related to liabilities stemming from its 2010 Gulf of Mexico oil spill.

Even stripping out the one-off charges, BP's underlying earnings of $720 million were lower than analysts had expected, sending shares down.

France's Total said its profitability fell again in the second quarter as revenue from its refineries and petrochemical plants deteriorated. Total's second quarter net profit fell 30% to $2.09 billion compared with the same period a year ago. It said it expects to cut costs by more than the $2.4 billion originally targeted.

Statoil said Wednesday it would cut capital expenditure by 8% to $12 billion this year compared with previous guidance, as the Norwegian producer swung to a second-quarter net loss on the year on weaker oil prices and refining margins.

Statoil's gearing rose to 31.2% at the end of the quarter compared with 22.4% a year ago.

"We are comfortable with a debt ratio well above 30% because we have a big toolbox," Statoil President and Chief Executive Officer Eldar Sætre said, citing the company's flexibility on what to invest in.

Repsol's second-quarter net profit was EUR205 million ($226.73) compared with EUR292 million a year earlier as the company booked a EUR346 million restructuring charge due to job cuts.

U.S. oil giants Exxon Mobil Corp and Chevron Corp and Italy's Eni SpA are to publish results on Friday.

Kjetil Malkenes Hovland in Oslo, Inti Landauro in Paris and Carlos Lopez Perea in Madrid contributed to this article

Write to Selina Williams at selina.williams@wsj.com

(END) Dow Jones Newswires

July 29, 2016 02:48 ET (06:48 GMT)

BP (NYSE:BP)
Historical Stock Chart
From Mar 2024 to Apr 2024

BP (NYSE:BP)
Historical Stock Chart
From Apr 2023 to Apr 2024