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Will energy giants return to profit in 2017?
February 7, 2017, 11:02 am

BP reported a higher net income in the Q4 of 2016, but still well below market expectations [Xinhua]

With oil prices largely stabilizing in 2017, energy companies are expecting to return to profits after two years of sustained losses.

But they may have to wait a bit before they are at pre-2014 levels.

On Tuesday, oil giant British Petroleum (BP) reported a net income – $400 million – that was below the analyst forecast of $560 million for the fourth quarter 2016.

Although this was marked improvement over last year’s losses, BP’s shares fell by more than two per cent in early Tuesday trading.

Since oil prices fell by more than 60 per cent in 2014, oil companies such as ExxonMobil, BP and Royal Dutch Shell, to name a few, have had to fire thousands of employees, slash funding to their research divisions, and struggle to meet shareholders’ dividends.

But now that oil prices appear to have maintained position above the $50 mark – and with some expecting prices to top $60 a barrel by the end of 2017, major energy companies are hoping to taste profit for the first time in more than two years, although that might begin to bear fruit in the last two quarters of the year.

On Tuesday, international benchmark Brent Crude was trading at $55.60 a barrel, at press time.

Most of the energy giants are now banking on being able to cover capital spending and dividend payouts during 2017 from cash flow considerations at $50 to $55 a barrel.

This would be a welcome trend for the aforementioned companies and others – Chevron, Italy’s Eni, and Conoco Phillips – which have reported dismal if not extremely steep declines in second and third quarter earnings in 2016.

Between the end of 2014 and the end of 2016, they had to endure an ‘energy status quo’ where industries have to contend with low oil prices which are adding pressure to move away from shale drilling and lay off thousands of employees.

Even before the oil price tumble, companies investing in shale oil production started to fear a dwindling profit margin and began to scale back investment in this energy sector.

Shale investor ConocoPhilips, for example, had by the beginning of 2016 slashed its budget by more than 20 per cent.

Chevron’s Chief Executive Officer John Watson told Reuters at the time that the company is undergoing a period of “ongoing adjustment to a lower oil price world”.

The BRICS Post with inputs from Agencies

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