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Shell trumps BP in the battle of the oil giants

Britain’s biggest oil companies are expected to reveal bumper profits totalling a massive £9.2bn for the quarter, but troubled BP, once industry leader, will be far outstripped by Shell.

By 6:00AM BST 25 Jul 2011

Royal Dutch Shell is set to post quarterly profits of £4bn on Tuesday, a 60pc increase on the year before, while BP’s profits are up just 21pc at £3.6bn despite rocketing oil prices.

BP’s sale of oil fields to pay for its Gulf of Mexico oil spill disaster has eaten into production and profits, with output seen down 11pc in the quarter.

While the Anglo-Dutch giant Shell has benefited from production volume growth in the second quarter compared with other oil groups. Earnings from exploration and production in the second quarter are expected to show a 70pc uplift.

Over the past full year, BP’s share price has risen 17pc, compared with Shell’s increase of 30pc. Taken from the worst of the spill crisis, its price has increased 54pc to 470p per share, while Shell’s share price is up 45pc at £22.86.

Faced by this drab financial performance, BP’s American chief executive Bob Dudley is coming under pressure to come up with a much more radical strategy.

“Investors feel that the company has slightly lost its way,” Paul Mumford, fund manager at Cavendish Asset Management. “You need to have some clear guidance on where the company is going in the future, and how they are going to advance their strategy,” he added.

Some industry experts have suggested that BP should follow the example of ConocoPhillips, which last week spun off its oil-refining and fuel retail unit.

Meanwhile, BG Group, their smaller rival, is expected to have doubled its profits to $2bn for the past three months, compared with the previous year.

Analysts at Barclays Capital expect profits at the oil companies and refiners it follows will increase 42pc in the second quarter, fuelled by a 50pc jump in crude prices and global refining margins.

However, experts claim that the high oil price is masking serious operational challenges in the sector that may soon begin to show.

Despite the big figures and optimistic headlines, Deutsche Bank analysts say oil companies are going to have a tough time keeping up production.

Large oil companies have found it difficult to increase production. Investment in massive, long-term exploration projects is required and access to resources is tougher, with many producing nations restricting oil majors’ access.

“A key facet of a sector bull thesis is that, after a number of years of disappointment, 2012 to 2013 will see the sector return to growth,” a Deutsche Bank spokesman said. “Unfortunately, second quarter 2011 results are unlikely to build confidence in this theme.

“A combination of divestments, maintenance, extreme seasonality [low European gas demand], limited production from Libya and a series of stock-specific issues, drive our expectation for a 7pc year-on-year production decline.”

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