Maersk Oil expects profit fall

Oil price drop: Will affect Maersk Oil, led by chief executive Jakob Thomasen

Maersk Oil is expecting a lower profit this year as reduced energy prices erode an anticipated hike in production.

The Danish conglomerate’s drilling business is also set for a profit fall as it deals with planned yard stays for units and newbuilds incur start-up costs.

Parent AP Moller-Maersk itself boasted a 53% rise in US dollar net profit in the first quarter of $1.21 billion as against $710 million in the same period of 2013.

This was despite revenues only inching up from $11.63 billion to $11.74 billion, as depreciation and amortisation costs sank 11% and financial items, although negative by $154 million, improved year-on-year by $121 million.

The huge profit hike was driven by improvements in all business segments except for Maersk Drilling. Higher oil production and container volumes for core shipping business Maersk Line were, however, somewhat eroded by lower energy prices and freight volumes.

Maersk Oil posted a profit of $346 million, identical to a year earlier. This was despite entitlement production rising from an average of 239,000 barrels of oil equivalent per day to 256,000 boepd, as average oil prices slipped from $112 per barrel to $108.

Exploration costs were down from $235 million to $173 million and are expected to come in slightly below $1 billion this year. The company completed three exploration and appraisal wells in the first three months of the year, including one at the giant Johan Sverdrup field off Norway.

Maersk Drilling, however, saw profit in the quarter sink from $146 million to $116 million due to a trio of yard stays for units, while it also took two newbuilds on board, racking up start-up costs. The company still awaits six newbuilds, four of which have secured contracts.

Although the group still sees 2014 net profit “significantly above” last year’s total, largely due to a $2.8 billion gain from the sale of the Danks Supermarked Group, some units will see a fall.

Maersk Oil is projected to see an underlying profit below the 2013 sum of $1 billion, based on a reduced per-barrel oil price of $104. Production, however, should rise from an average of 235,000 boepd to 240,000 boepd.

Maersk warned that the oil unit will, however, see lower output in the second and third quarters due to planned shut-ins.

The drilling wing expects underlying profit to come in below 2013’s $528 million due to the planned yard stays and costs associated with taking delivery of newbuilds.

Overall the group is looking at an underlying result of $4 billion as compared with $3.6 billion in 2013, when taking into consideration discontinued operations, impairment losses and divestment gains.

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