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WRAPUP 1-Oil industry slipping into the red as outlook dims

Published 2015-10-29, 10:37 a/m
© Reuters.  WRAPUP 1-Oil industry slipping into the red as outlook dims

* Seven of 10 majors to have reported Q3 results registered
losses
* Shell posts $7.4 bln loss after heavy write-offs
* Italian major Eni reports $1 bln loss
* Sector challenged by lower-for-longer oil price outlook

By Ron Bousso and Karolin Schaps
LONDON, Oct 29 (Reuters) - The oil sector is gradually
slipping into the red after years of fat profits as the slump in
oil prices and a grim outlook bite deeper.
The world's top oil companies have struggled in recent
months to cope with the halving of oil prices since June 2014,
cutting spending repeatedly, making thousands of job cuts and
scrapping projects.
The lower-for-longer outlook for oil prices took its
heaviest toll yet in the third quarter as oil companies once
again reported a dramatic drop in income, with some falling to a
loss, having taken impairment charges of about $25 billion in
the first nine months of the year.
With 10 of the top 20 European and North American oil and
gas producers having reported third-quarter results, seven have
posted losses.
These include Royal Dutch Shell RDSa.L , Italy's Eni
ENI.MI and in North America Occidental Petroleum Corp (N:OXY) OXY.N ,
Anadarko Petroleum Corp (N:APC) APC.N , Hess Corp (N:HES) HES.N , Suncor
SU.TO and ConocoPhillips (N:COP) COP.N .
Shell, posted a third-quarter loss of $7.4 billion on
Thursday, hit by a massive $8.2 billion charge after halting its
controversial exploration in Alaska's Arctic sea and a costly
oil sands project in Canada.

DOWNWARD REVISION
About half of Shell's charges reflected a downward revision
of the company's long-term oil and gas price outlook, Chief
Executive Ben van Beurden said.
The company's net profit excluding identified items
collapsed to $1.8 billion from $5.85 billion a year ago,
reflecting the trend among its peers.
Eni, meanwhile, reported a net loss of $1 billion and
France's Total TOTF.PA came in with a sharp year-on-year drop
in profit, though its results were stronger than
expected.
"The sector is rapidly moving into the red," Jefferies oil
and gas equities analyst Jason Gammel said.
"It is slowly going to claw its way back into the black
through cost-reduction efforts, but that will take time. It will
depend on price movements, but it will take time to get all
these cost savings through the system."
Although European oil companies have reduced breakeven
points significantly through cost efficiencies and spending
cuts, they will on average require an oil price of around $78 a
barrel in 2016 to cover spending and dividend payments,
according to Jefferies estimates before the latest results.
Analysts polled by Reuters expect Brent crude LCOc1 to
average $58.60 a barrel in 2016.
Shell, which Jefferies says has the lowest cashflow
breakeven point at around $66 a barrel, said it would axe an
additional 1,000 jobs after announcing 6,500 job cuts earlier
this year.

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MORE DEBT
Companies are also tapping the debt market, benefiting from
a relatively low debt ratio that will allow them to cover
spending and dividend payments that, except for Eni, have
remained unchanged.
Britain's BP BP.L , for example, increased its debt ratio
to 20 percent from 15 percent a year ago after agreeing in July
to pay $20 billion in fines relating to the 2010 Gulf of Mexico
oil spill.
The downturn has forced Europe's majors to reduce 2015
spending programmes by about 15 percent to near $107 billion and
the cuts are set to become even deeper next year.
On Tuesday Norway's Statoil STL.OL posted worse than
expected third-quarter core earnings and said it would continue
cutting costs by slashing capital expenditure by a further $1
billion to $16.5 billion.
The sharp drop in revenue from oil production, however, has
been offset by spectacular gains in refining and trading
segments as lower prices boosted global fuel demand, though the
positive impact is expected to fade with the seasonal drop in
demand over the winter months.
BP, like Total, managed to beat analyst expectations this
week despite a sharp year-on-year profit fall, citing increased
efficiencies, higher oil production and strong refining
results.
Shell and Eni shares were down 1.4 percent and 1.8 percent
respectively at 1422 GMT, with Total up by 0.4 percent. The
European oil and gas index .SXEP was largely flat.


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