SPM Saipem Spa

By Sarah Kent, Eric Sylvers and Inti Landauro 

LONDON--Some of the world's largest oil companies reported sharply lower earnings on Thursday as they gave up on some ventures that no longer make sense in a world of crude prices around $50 a barrel.

Royal Dutch Shell PLC posted a $6.1 billion loss in the third quarter after its decision to walk away from exploring the Arctic for oil and exploiting Canada's oil sands resulted in $7.9 billion in charges. Petro China Co., the biggest oil-and-gas producer by volume in China, said its third-quarter net profit fell by more than 80%.

Total SA, the French oil giant, said its net profit fell 69% compared with last year's third quarter, partly the result of a $650 million write-down in its Canada oil-sands ventures. Italy's Eni SpA experienced a loss of EUR952 million in the third quarter and decided to sell 12.5% of its troubled oil-field services company Saipem SpA.

And in the U.S., ConocoPhillips reported a loss of $1.1 billion and announced new plans to trim spending.

This unpleasant picture is presented after a third quarter in which Brent crude, the international benchmark for oil prices, traded at about $50 a barrel on average, the lowest sustained levels since the financial crisis. The companies said they were straining to change how they do business as prices are depressed by new supplies of U.S., Russian and Middle Eastern oil outstripping global demand.

"The reality of the day is that we don't know when and how this will balance out. We don't even know if it really stabilizes," Shell Chief Executive Ben van Beurden said on a call with reporters Thursday. "If you have a high degree of uncertainty over the oil price, you have to have projects that are very resilient."

Shell's about-face is among the industry's starkest. The U.K.-Dutch giant had gained a reputation as being optimistic about the future direction of oil prices, moving aggressively to buy BG Group PLC for $70 billion in an acquisition seen as bullish.

Now, Shell says it is looking at $55 a barrel as the break-even oil price for new projects and took billions of dollars in impairment charges in the third quarter after lowering its long-term oil and gas price outlook.

The company has moved to focus on what Mr. van Beurden sees as its two core strengths: challenging deep water projects and liquefied natural gas. The chief executive proved he was willing to abandon two major developments--the Alaskan Arctic and its Canadian oil-sands project called Carmon Creek--that he didn't see as core, even though the company had spent billions on them.

The cost of those decisions was steep, though. And even stripping out its impairments and write-offs, Shell reported an adjusted profit of $1.8 billion, down 70% compared with a year earlier and missing analysts' expectations.

Low oil prices were most apparent in Shell's upstream business, which focuses on finding and producing oil and gas. The segment reported a net loss of $8.6 billion in the third quarter compared with a $3.9 billion profit a year earlier. Reduced costs and a 3% increase in production volumes weren't enough to offset the impact of weaker prices, the company's sizable write downs and a higher tax bill.

The extent of the oil prices' effect on the industry will come into sharper focus on Friday when American giants like ExxonMobil Corp. and Chevron Corp. reveal their third-quarter earnings. Their profits have fallen in the past year, though neither has posted a net loss like Shell and other European companies this year.

Eni's sale of a Saipem stake to an Italian state-run investment fund will bring in some needed cash--about EUR5.4 million euros--as the company confronts low-oil prices. Eni has said that it will use the proceeds for its exploration and production business and to shore up its balance sheet.

Eni Chief Executive Claudio Descalzi has indicated that the 31% stake his company still owns in Saipem could be lowered further though he is in no rush to do so in light of the company's depressed stock. The shares have lost half their value in the past two years as Saipem issued multiple profit warnings and cycled through three CEOs.

Total was able to soften the blow of low oil prices by raising output to an average of 2.34 million barrels of oil equivalent a day, up from 2.12 million barrels a day in the same period a year ago. Its adjusted net profit--a closely watched figure that strips out one-time charges such as write-downs--fell just 22% to $2.76 million, beating expectations.

Some analysts said that they weren't worried about the third-quarter earnings. With the exception of Eni, the companies appear committed to paying hefty dividends, and many of the losses are "one offs," said Oswald Clint, an energy analyst at Sanford C. Bernstein Research.

"In the nine months year to date, many are delivering cash flows above expectations and balance sheets in the same state of health as this time last year, and therefore the dividend payment potential remains intact," he added.

Brian Spegele contributed to this article.

Write to Sarah Kent at sarah.kent@wsj.com, Eric Sylvers at eric.sylvers@wsj.com and Inti Landauro at inti.landauro@wsj.com

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(END) Dow Jones Newswires

October 29, 2015 09:37 ET (13:37 GMT)

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