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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (73359)	9/13/2000 11:50:10 PM
From: Tomas	Respond to of 95453

Booming profits fuel a good year for oil majors - As Consumers Suffer The Industry Finds Itself Awash With Cash Financial Times, September 14 By THOROLD BARKER and HILLARY DURGIN As businesses from one-man bands to flag-carrying airlines are hit by fall-out from the high oil price, oil producers are facing a very different "problem" - how best to spend all that cash. Nineteen months ago the oil majors were hacking away at their cost bases as oil at Dollars 10 a barrel undermined profits. But this year - as the price has soared to well over Dollars 30 a barrel - profits from the four biggest oil companies are expected more than to double to a combined Dollars 50bn, according to Lehman Brothers. Alan MacDonald, an analyst at UBS Warburg, says: "Oil majors do not tend to hedge, so there is a direct effect on profits." Of the big four, BP Amoco looks best placed to benefit. About 74 per cent of its profits are expected to come from oil exploration and production this year. This compares with about 70 per cent for Exxon Mobil, Royal Dutch/Shell and TotalFina Elf. Credit Suisse First Boston estimates that every Dollars 1 rise in the oil price boosts cashflow at BP and Shell by at least Dollars 300m. However, analysts say the effect is more pronounced than in some cycles, because the oil price surge has not squeezed margins in other areas of the chain, notably refining. Fergus MacLeod, at Pure Research, an oil consultancy, says: "Usually at a time of high oil prices you would expect to see refining margins squeezed. But refining is making more money than it has for 10 years. The companies are not losing on the swings what they gain on the roundabouts." UBS Warburg says demand for refined products in Europe has lifted margins from about Dollars 1.76 a barrel last year to an expected Dollars 3.30 this year. Profits from chemical production have risen sharply from their low-point last year, in spite of the rise in the cost of oil, its main input. Excess capacity has dwindled as demand in Asia has recovered alongside continued economic growth in Europe and the US. Also, US natural gas prices, which do not always follow crude prices, have risen. The only area to be hit has been retail petrol margins. Recent blockades around Europe are an added complication, but the market was already fiercely competitive. One petrol retail executive says: "The problem on UK forecourts makes little difference. Some were selling at a loss anyway." One danger is that governments use high oil prices to raise taxes on the oil producers. For example, some executives are understood to be nervous that if oil companies are blamed for the current petrol crisis in the UK, the government might use it as an opportunity to resurrect plans to increase taxes on North Sea production - shelved in 1998 when the oil price collapsed - or impose a windfall tax. In the short term, however, the big oil groups should continue to benefit. But many analysts do not expect current levels to be sustained as global stocks begin to rebuild, the impact of Opec's latest production rise filters through and demand slows after the winter. The virtuous circle could turn vicious as quickly as the Dollars 10 oil of last year has become a distant memory. Mr MacDonald says: "We are not drawing down stocks any more and they will rebuild very quickly. The market is sensitive. A swing of less than 1 1/2 per cent (1m barrels a day) in global production can make the difference between feast and famine for the oil producers."