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Major oil companies unveil the damage of $45 crude

CNBC logo CNBC 10/29/2015 Matt Clinch

It was a bruising day for Europe's energy sector Thursday, with the full extent of the pain caused by low oil prices being laid bare in a series of earnings reports.

Anglo–Dutch multinational Royal Dutch Shell (RDSA-GB) reported a loss of $6.1 billion, compared with a gain of $5.3 billion for the same quarter a year ago, a decrease of 70 percent. This included a large $8.2 billion write-off due to a downward revision of its oil and gas price outlook and also a decision to halt projects in Alaska and Canada.

Oswald Clint, senior analyst at Bernstein, called these impairments a "necessary evil" which would allow a "new" Shell to emerge that could focus on natural gas and deep water drilling. James Sparrow, a credit specialist at BNP Paribas. called it a "kitchen sinking" exercise ahead of its merger with BG Group (@BGLFDC16J-GB).

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The news didn't stop there. French major Total (FP-FR) reported a 23 percent drop in third-quarter adjusted net income from the same quarter last year, although CEO Patrick Pouyanne spoke of "resilience" in the face of falling oil prices. Analysts were pleased with the results, too. Sparrow, called the numbers "encouraging" while Oswald noted that it had benefited from not having made any big investments into the U.S. shale sector.

"The company's response for the 2015 trough oil price year is working as they push to lower their breakeven oil price by $40 a barrel. Combined with the continued ramp up of long life assets we believe this remains a great portfolio (for Total)," Oswald said in a morning note.

In Italy, oil and gas company Eni (ENI-IT) reported a 75 percent drop in adjusted operating profit for the third quarter to 752 million euros, while its adjusted operating profit for the first nine months of the year came in at 3.1 billion euros, down 67 percent compared to same period in 2014.

Analysts were the least bullish on the Rome-based firm, with Oswald calling the numbers "slightly messy" and BNP Paribas highlighting that its outlook was "very challenging". The latter advocated buying CDS (credit default swaps) on the company.

The price of oil has collapsed from near $120 a barrel in June last year to lows of around $40 a barrel in August. This dramatic fall in prices was due to weak demand, a strong dollar and booming U.S. oil production, according to the International Energy Agency (IEA). However, OPEC's reluctance to cut output has also been seen as a key reason behind the fall.

Shares of Royal Dutch Shell were trading down 1.6 percent in morning trade Thursday, while Eni lost 1.7 percent and Total sank 1.2 percent.

Despite the mixed reception of the results, it's generally acknowledged that the major conglomerates are in a better position to deal with the rout in oil prices, compared with exploration firms or smaller shale companies in the U.S.

Bernstein maintained its "market-perform" rating on Total Thursday, and its "outperform" rating for both Eni and Shell.


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