Oil profits set to plummet by billions: BP and Shell hit as prices plunge and exploration venture collapses

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BP and Shell will this week report billions of pounds wiped off their profits as the effect of the low oil price coupled with expensive exploration failures hammer two of Britain’s biggest companies.

The City expects BP, under chief executive Bob Dudley, to report an underlying profit fall of 60 per cent to £800 million on Tuesday when it unveils results for the three months to the end of September, compared with a profit of £2 billion for the same period last year.

The price of a barrel of Brent crude has plunged from more than $100 a barrel in the summer of last year to $48 a barrel today.

Dark days: The price of a barrel of Brent crude has plunged from more than $100 a barrel in the summer of last year to $48 a barrel today

China’s economy has stuttered and its demand for oil has fallen, but Saudi Arabia, the world’s second biggest oil producer, has refused to rein in production as it tries desperately to drive US shale oil producers out of business in order to protect its market share.

During its third quarter, BP reached agreement to pay £12.4 billion to the US government and several states over the Deepwater Horizon oil disaster of 2010.

Rival Anglo-Dutch oil giant Shell, under chief executive Ben van Beurden, is also poised to report that it has been financially battered.

On Thursday, it is expected to write down the cost of its ill-fated multi-billion pound Arctic drilling venture which ended in failure last month.

Its underlying profits are thought to be £1.7 billion for the third quarter, down from £3.5 billion for the same time last year.

Shell cancelled its offshore drilling exploration off the coast of Alaska last month. The project, which had drawn worldwide protests from environmentalists, had taken up a fifth of the company’s exploration budget since 2007.

The firm said when it threw in the towel on the project that it expected to take a financial charge to its accounts as a result of the scheme’s failure and this could amount to a hit on its balance sheet of £2.7 billion.

Shell is in the process of acquiring BG Group – another of Britain’s premier oil and gas exploration firms – for £47 billion.

Van Beurden told The Mail on Sunday last month that the BG Group deal would still be going ahead despite the falling oil price and the resultant lower profits which would be affecting the share prices of both firms as

well as the terms on which the deal is based.

BG Group, which is likely to have been affected by the fall in global gas prices, reports third-quarter results on Friday.

Investment bank UBS said: ‘On the face of it we expect BG to report earnings that are barely break-even.’

However, the bank predicts that the company will report a sharp increase in production – up by 20 per cent year on year.

All the companies, which are some of the biggest in the FTSE, have been relying on their so-called downstream operations – including refining and supplying oil and gas products, and trading – to boost profits.