September 16 2000

UK profits a drop in the ocean for oil-rich industry

TO WHAT did your thoughts turn during the hours spent queueing for a few drops of precious unleaded last night? A freak whirlwind destroying 500 cars in front of you perhaps, or how the fuel crisis would quickly be resolved if the handful of men who control the world's petrol supplies had to line up behind you. The senior executives of the five biggest oil companies - BP, Royal Dutch/Shell, ExxonMobil, TotalFinaElf and Texaco - doubtless had their minds focused on the rising price of crude oil, which is doing their balance sheets no harm at all.

And until their representatives were summoned to Downing Street this week it is unlikely that any of them spared so much as a thought for the unfolding crisis on Britain's forecourts.

BP and Shell are the only oil majors based in the UK. But Sir John Browne, BP's chief executive, is more concerned with the group's growing presence in the rest of the world, particularly in Asia, than with the problems on his own doorstep.

A glance at the company's balance sheet is all that is needed to explain Sir John's seeming distance from domestic affairs - so distant in fact, that he admitted this week to being "caught unawares" by the whole affair.

All the oil giants have seen their profits soar in direct relation to the increases in the price of crude, and the price of petrol, in the past two years.

In 1998, when the average price for a barrel of oil was just $10, BP made $4.5 billion (#3.2 billion) of net profits. Next January, when the oil companies reveal their financial results for 2000, analysts are forecasting BP profits to have almost tripled to $12 billion. Needless to say, the average price for a barrel of oil is expected to have tripled as well, with dealers paying $30 a barrel.

Sir Mark Moody-Stuart, the newly knighted chairman of the Royal Dutch/Shell management committee, may be based in London, but he is far more focused on the Anglo-Dutch group's African business and cost-cutting across its global operations. Indeed, when the call went out from Downing Street, it was Malcolm Brinded, Shell UK country chairman, who was called upon to run the media gauntlet. Shell's profits outlook is similar to BP's with $13 billion of net profit expected this year, compared with $5 billion in 1998.

Increases are expected to be more modest at Exxon, which owns Esso in the UK, but a jump from $6.4 billion to $15.5 billion in two years is still not to be sniffed at. The group is resolute, however, that its prices are not overly exorbitant.

Companies such as Exxon show just how dependent Britain is on multinationals with their head offices - and shareholders - far-removed from London. Exxon is headquartered in Irving, Texas, and has 40,000 service stations worldwide of which only 1,620 are in the UK. The folk in Irving have probably never heard of Ellesmere Port.

Exxon recently appointed an American, Ansel Condray, as UK country chairman. It was Condray - yet another faceless oil executive - who was called to account when Esso callously announced an increase in petrol prices, before recapitulating. Appearing on GMTV, Condray said he would not even try to defend the company's actions.

One of Britain's biggest petrol retailers is, once again, not British. Paris-based TotalFinaElf, formed from a recent round of carbon-based musical chairs, has 1,705 petrol stations in the UK. The outlets are all being rebranded as just Total.

Although smaller than Shell, BP and Exxon, Total will still turn in almost $7 billion of net profits come January, compared with $1.5 billion in 1998, a much bigger increase than the average.

Total's chief executive, Thierry Desmarest - known since the eco-disastrous sinking of the tanker Erika as "Black Tide Thierry" - recently hinted as to just how much more profitable the group has become since the fuel crisis began.

Net income across the group in the first six months of this year grew by 165 per cent. The rising price of oil has been kind to Total indeed.

Texaco, the smallest of the bunch by some margin, is run by Peter Bijur, a fast-talking New Yorker. The group will see profits of $2.6 billion for this year, compared with $950 million in 1998.

The UK accounts for the tiniest proportion of profits for each of the big players. Even BP and Shell only look to their home turf for between 2 per cent and 3 per cent of refining and marketing revenues, as does ExxonMobil. Britain brings in 4 per cent of Total's revenues, while little Texaco finds more than 8 per cent of its profits in the UK.

The oil majors have long campaigned for a flat $25 a barrel in the world oil market, a wish that has more than been granted. Now that they have achieved their goal, and the profits to go with it, their customers are rebelling.

Which is how Shell's Malcolm Brinded - along with peers such as BP's John Manzoni, the group vice-president in charge of petrol stations - came to slink out of Downing Street this week.

The alternative to price cuts and tax cuts in the UK is the imposition of windfall taxes. The evidence of excess profits is as visible as Thierry's infamous black tide.

http://www.the-times.co.uk/news/pages/tim/2000/09/16/timbizana02002.html

-- Martin Thompson (mthom1927@aol.com), September 15, 2000