Today is the big day for BP to report its first quarter results. Shell performs its version of the catwalk beauty parade on Thursday.
Between them, these two kings of global oil should report a collective $US9 billion in net profits for the three months to 31 March, a cool $100 million a day over the 90 days which make up the first quarter.
Slugcatcher awaits the precise dollar figures, but a poll of analysts by Reuters last week suggested BP will deliver around $US4.3 billion for its shareholders, and Shell a little more at $US4.7 billion.
The usual arguments will follow about how the profit figures are calculated, with the bean counters breaking into a sweat about unbelievably boring subjects such as replacement cost accounting v cost of supply – whatever that all means.
And then there will be a debate over the application of new international accounting standards, at which point the Slug says, “Beam me up Scotty”.
Far from the audit committee and accounting matters is where reality lies. This is the area that Slugcatcher enjoys most, and questions likely to be asked include: whether oil profits can continue to boom, whether governments are starting to take notice and whether the high water (sorry, high oil) mark has been passed.
The first point about an ongoing boom is interesting. At the moment, no one questions the size of the profits. How could you not make a bumper profit with oil north of $US50 a barrel for most of the quarter? The only downside is that margins in the refining business remain tight with most of the profit drive coming from upstream operations and petrochemicals.
Which leads to the second point and the continuing danger of a western European government blowing the whistle on big oil and slapping a wealth tax on profits.
With Britain in the middle of an election campaign, bonanza oil company profits even have the potential to become a poll issue with more than a few voters prepared to back anyone who offers to whack BP and Shell.
But of all the issues that will probably be raised this week in the wake of the BP and Shell results, the one most likely to be widelly discussed is an emerging belief that the tide has peaked, that oil company profits have hit their high and may now even recede slightly.
Evidence of this concern is slowly emerging in reports of rising oil inventories, a slowing in the US and European economies and the tight margins in the refining business.
Slugcatcher will watch with interest how the BP and Shell results are reported. The usual process is to compare one quarter with the previous corresponding period – that is, the March quarter this year with the March quarter last year.
A more interesting comparison will be the latest quarter with the last quarter of 2004, a time of absolute peak performance, when every division of just about every oil company was firing on all cylinders.
The devil, as always, will be in the detail – and in the way the annual estimates are calculated. Because if BP and Shell deliver their promised $US4.3 billion and $US4.7 billion, then they are both on track to report somewhere between $US17 billion and $US19 billion for all of 2005, numbers sure to attract more than a passing comment from financial and political commentators.
