Some Big Oil Getting Bigger and Better

BP (BP) and Royal Dutch Shell (RDS.A) blew past earnings estimates and both got a nice pop on today's open.

BP earned $7.6 billion vs $4.66 billion. As most other large integrated oil companies, BP's production growth stalled at 3.91 million BPD oil equivalent. BP benefited from higher oil prices and no doubt also from the natural gas produced by the old Atlantic Richfield and Amoco assets BP acquired up years ago. BP increased the dividend by 31% to $3.25/shared ADR. This corresponds to a yield of 4.7% at yesterday's closing price, and again shows, as I have repeatedly pointed out, how paltry Exxon Mobil's dividend is at a scant $1.40/share for a 1.5% yield.

Royal Dutch Shell profit rose to $9.08 billion vs. $7.28 billion. Shell's production was up slightly to 3.44 million BPD oil equivalent. Shell's awesome performance led them to increase their dividend by 11%.

Comparing BP to Shell from an investment view, it is interesting to note that BP's production is some half a million BPD more than Shell's, yet their net income was over $1 billion dollars less. It just goes to show how much further BP should be able to increase operational efficiency. This could well lead to continued stock price appreciation in comparison with its peers. BP's high dividend yield is also an attraction. BP certainly appears to be making strong headway in their turnaround efforts.

These earnings results should bode well for other foreign oil companies such as Total (TOT) and StatOil (STO). StatOil will release their earnings on May 13. Exxon Mobil's (XOM) earnings are due on Thursday.

Disclosure: The author is long STO and owns the other oil companies mentioned in this article indirectly via mutual funds.

Comments

[raymond bonnaterre]

RDS production increase v.s. Q1 2007 is formed by two items: a 8.7% natural gas production progress (1.682/1.548 mbloe/d) and a -5.5% liquid (oil+condensates+tar) production decrease (1.853/1.961 mbl/d). As oil companies are adding apples and oranges, global result looks like a progress. But never forget oil market price is two times gas market price for the same energy amount. Conclusion: in a constant prices environment RDS would lost profit.

[raymond bonnaterre]

For BP analysis it's a little bit more difficult. I prefer to check BP productions without TNK-BP data. With a such assumption BP liquid production v.s. Q1 2007 increases by 1.3% (1.635/1.614 mbl/day) and natural gas production are stable (1.372/1.370 mbloe/day). Definitively BP productions results with a ratio liquid/gas = 1.19 are better than RDS results with a ratio liquid/gas= 1.10.

[Mmarrkk]

Your issue around comparing oil prodcution and gas production is partially applicable. BUT, you must also look at cashflow for each product, not just revenue. Gas is much cheaper to produce on a BOE basis and on a BTU basis.

And you must look at the differences in pricing. A barrel of WTI is worth a lot more than a barrel of Venezuelan Heavy Oil. So, just saying one company makes more oil than the other really isn't an accurate analysis. Look at net cashflow, not revenue and certainly not net income. Financial accounting is a mish mash of made-up accounting entries. Cash flow and cash accounting results in real dollars that can be counted and spent.

[raymond bonnaterre]

Are you sure that liquefied natural gas chilled in a very expensive african factory , loaded in a very expensive boat to cross Atlantic Ocean, then stored and regazified in an other US factory is less expensive than oil coming from the same place? I am ready to trust your comment, but I am not really fully convinced. A lot of cash is needed to set up a so sophisticated process, a lot of energy is used to liquefied natural gas.
For RDSA with a 14.078 b$ cash (without working capital variation) a 44$ cash generation per barrel during the (31+29+31) days quarter is obtained. For BP with a 14.528 b$ cash during the same period a 53$ per barrel cash generation is got. That result don't fit your point of view. But, may be, my calculation is wrong.

[Norman Lepoff, M.D.]

Interesting stuff.

[Lazy Al]

The writer scoffs at Exxon’s dividend rate while failing to mention that Exxon’s stock has substantially outperformed both BP and Shell over the past two years.

Dividends are nice, but they’re not the only gauge of success.

[The Fitzman]

User: I hear ya, but jeez, 1.5%? For folks who have held XOM for decades, selling shares for income isn't a very nice option due to taxes. Qualified dividends are nice for income. I want both price appreciation AND a dividend. XOM is making enough cash for both. I'm not saying it should be as high as BP's, but certainly something in the 3% range is not out of order here considering XOM's financial position, which is simply stellar. I just wish they'd divert some of the income stream they are funneling into stock buybacks toward the stockholder...some of which held the stock through the lean times when oil was $10/barrel. 1.5% is just too skimpy.

[Lazy Al]

Fitzman,

I expect XOM will make an unusually generous (for XOM) increase to the quarterly dividend within a few days.

[berberick]

I like the fact that BP is expanding it's biz. into solar , ethanol , wind , chemicals .