Europe oil firms post huge profits as crude rebounds

Julien MIVIELLE
·4-min read
France's Total, Britain's BP, Anglo-Dutch group Shell and Spain's Repsol have this week posted $14.5 billion in first quarter profits between them thanks to rising oil prices.

European oil majors have posted strong quarterly profits as a recovery in crude prices fuelled their rebound from the coronavirus crisis.

France's Total, Britain's BP, Anglo-Dutch group Shell and Spain's Repsol have this week posted $14.5 billion in first quarter profits between them.

At the same time, the companies renewed their commitments to investing in renewable energies.

It's a huge turnaround from last year, when global lockdowns decimated economic activity and oil prices fell off a cliff, taking the energy giants' balance sheets with them.

Royal Dutch Shell led the way posting a $5.7 billion (4.7 billion euros) net profit in the first quarter on Thursday following a loss in the same period last year.

BP also returned to the black, booking a $4.7 billion profit while Total added $3.3 billion, even outstripping pre-pandemic levels.

Repsol, browbeaten by two years of huge losses, scored a $783 million gain.

The results are a boon for the majors, who made tens of billions of cumulative losses last year as the health pandemic took hold and prices collapsed.

Prices have returned to pre-pandemic since them, exceeding $60 per barrel. Goldman Sachs analyst see prices rising to $80 in the next six months.

"These are profitable price levels and it is not a surprise that oil companies have published strong results," said Michael Tamvakis, commodity economics professor at London's Business School.

Oil prices should remain strong as the driving and flying season restarts later in May and June, Tamvakis said.

"So for now, oil companies have weathered the storm," he said.

- 'All is well' -

The profits are also a reflection that some companies are slimming down their staff levels.

Shell decided to axe more than 10 percent of its global workforce, or up to 9,000 jobs.

Shell, like some of its peers, has also been shedding assets. That gave it a $1.4-billion boost in the first quarter.

"Shell has made a strong start to 2021, generating over $8 billion of cash in the quarter," said chief executive Ben van Beurden.

He added that Shell's model is ideally positioned to benefit from recovering demand.

"Fortunately for investors these latest results come without the drama seen this time last year when Shell cut its dividend for the first time since the Second World War," said Keith Bowman, equity analyst at Interactive Investor.

Shell this time around increased its dividend payout by about 4.0 percent compared with the final quarter of last year.

Total not only bested its $34 million profit from last year, it exceed the $3.1 billion recorded in the first quarter of 2019.

"Total has already returned to the pre-crisis pace of high results," chief executive Patrick Pouyanne told the daily Sud Ouest newspaper. "All is well."

- Renewable energy -

The companies also outlined plans to continue investing in renewable energies as climate change has put pressure on countries to reduce their reliance on fossil fuels.

"The overarching issue of energy transition has not gone away and a few good or bad results will not change their long-term strategy of becoming 'energy' rather than 'O&G' (oil and gas) companies," Tamvakis said.

"These results will probably give them a bit of breathing space and the confidence and capital required to continue with their transition strategies."

Total said it plans investments of up to $13 billion, half to maintain the group's activities and the other half for growth, including for renewables and electricity.

With investment in renewables, including acquiring a 20-percent stake in India's Adani Green Energy and a wind power project off Taiwan, "the group is accelerating its transformation into a broad energy company," Pouyanne said in the group's earnings statement.

BP chief executive Bernard Looney said the "key question" on the mind of many investors is whether companies can deliver competitive cash returns while at the same time transitioning towards other sources of energy.

"Our job is to show that, over time, we can do both," Looney said. "We can transition bp for the future, while at the same time –- not or -– at the same time deliver our investors competitive cash returns."

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