Lower oil prices have been eating into oil and gas companies’ profits for a number of quarters now, and investors and analysts are focusing on how successful the firms are in bringing down costs and adapting to the tougher market environment. But a lot of attention is being paid to any changes in the tone and mood of company executives during the earnings season, for cues on how they might tweak their firms’ strategies. Take BP and Shell, for example.
BP chief executive Bob Dudley has been bearish about oil prices for months. “I sort of feel that we are not alone now for sure,” he said on Tuesday after BP was the first among the major oil and gas companies to report its second-quarter results. Oil prices have retreated in recent weeks close to the lows seen at the beginning of the year, reversing a few months of moderate recovery.
Two days after Dudley’s comment, Shell told the market that the current oil price downturn could last for a number of years. Shell chief executive Ben van Beurden admits that “the tone has changed” from the more measured message his company conveyed earlier this year. “Maybe we did not quite create a right impression of urgency back in January,” van Beurden says. “I do not want there to be any misunderstanding that we are not acting with urgency and determination.” Shell is now budgeting less capital investment this year and next, and it is cutting operating costs by 10pc in 2015.
If the tone of BP’s message on prices is unchanged, the vibe it exudes on its corporate future is more chipper following its 2 July agreements in principle to settle US federal and state claims related to the 2010 Gulf of Mexico crude spill. The $18.7bn deal makes the company a less attractive takeover target, partly because a large portion of the payments might have to be made up front if BP was acquired, Dudley says, contradicting what many commentators have been saying following the deal announcement.
“As a result of the settlement in the US, I think it is actually less likely that someone would want to acquire BP, and it is certainly not our intention to put the company up for sale,” Dudley says.
The settlement allows BP to spread out the payments over 15-18 years. But in the event of a takeover, the US federal government and the five US Gulf states affected by the spill can choose to accelerate the $5.5bn agreed in Clean Water Act (CWA) fines and $7.1bn in natural resource damages.
Dudley also says that settling the vast majority of obligations in the US makes him feel more comfortable with going forward with the second phase of the deepwater Mad Dog oil field in the US Gulf of Mexico, a project he sees as very attractive.
Answering a question about permanent job losses at BP this year, Dudley said that he did not have that number, but said that BP’s staff numbers are down by 5,000 so far this year through asset divestments and job cuts. And then he joked: “I would also – not to give you a number, but predict a significant reduction in legal expenses in the United States.”
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