Shell, Total and ExxonMobil have all recently posted record first quarter earnings. The figures are so good, in fact, the supermajors have come under renewed fire from consumers across Europe and North America for extorting the man on the street to swell their coffers.
However, a closer examination of the balance sheets reveals a far more interesting fact for the readers of Oil and Gas Middle East. The bumper profits and best returns on investment are being had, in every case, in the upstream.
In fact, downstream operating figures look pretty lacklustre across the board, and in some cases posting refining and retail losses. It is not unexpected in such a high price environment that the exploration and production divisions perform well, but the astonishing figures have been delivered during a period of rapidly escalating project prices, and a woefully depreciating dollar.
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Shell posted Q1 earnings of US$7.9 billion in late April, blowing away even the most optimistic of forecasts. By far the largest contributing business unit was exploration and production, raking in a massive $5.2 billion in earnings, fully 66% of the corporate total. The upstream earnings leapt from $3.3 billion in the same period last year. Refining and fuel marketing profits fell 20% due to an industry-wide collapse in crude processing margins.
ExxonMobil released equally impressive upstream figures last month. “First quarter net income was a record $10.89 billion, up 17% from the first quarter of 2007,” beamed Rex Tillerson, ExxonMobil chairman.
The company’s upstream activities represented $8.785 billion, up $2.75 billion from the first quarter of 2007. Once again, downstream activities performed poorly. Downstream earnings of $1.166 billion were $746 million lower than the first quarter of 2007.
Significantly lower worldwide refining margins decreased ExxonMobil earnings by approximately $1.0 billion.
Just a week later, it was French energy giant Total’s turn in the spotlight. They didn’t disappoint investors, posting net profits in excess of $5 billion. “This performance was driven mainly by the group’s upstream segment,” said CEO Christophe de Margerie.
“Total also benefited from the ramp-up of the Dolphin project in the Middle East, which reached its target plateau ahead of schedule.”
Rising oil prices have continued well into the second quarter, and gas prices are following suit. If energy prices remain high, the challenge for the oil majors will surely be one of maintaining their impressive upstream performance as access to large fields becomes evermore focussed in the hands of national oil companies.
Daniel Canty is the editor of Oil & Gas Middle East.
