Oil Companies: We're Not As Profitable As You Think

The oil industry says it’s not as profitable as its record quarterly reports suggest. Costs going up, margins going down–what’s an industry to do?

FT: Oil companies’ profitability fell last year as rising costs eroded gains from the rise in oil prices, an industry study has found.

The companies’ return on capital from their oil and gas production fell to 19 per cent, 3.5 percentage points lower than in 2006, according to the study from IHS Herold, a research firm, and Harrison Lovegrove, a corporate finance firm owned by Standard Chartered bank.

The study of 232 leading quoted oil and gas companies also found that they had not increased their total reserves last year, and raised production only slightly.

Rodney Schmidt of Standard Chartered suggested that if oil prices continued to fall, oil companies could face growing difficulties. “We are now at a point of greater uncertainty…where there are questions about demand and about where prices will end up. At the same time, profit margins have not been increasing.”

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