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Profits plunge for oil giants after crude's value plummets; BP profits set to be a third of last year's.

Byline: Russell Lynch and Holly Williams

HEAVYWEIGHT UK firms will have their turn in the spotlight this week after a largely positive run of third quarter results in the United States.

Oil majors BP and Royal Dutch Shell present third-quarter results, but profits will be a fraction of last year's bumper haul.

The duo's results for the July to September period last year were boosted by crude oil prices reaching an all-time high of $147 a barrel, but prices have averaged around half that this time around.

Prices have moved in a narrow range between $65 and $75 a barrel in recent months but last week touched above $80 on a mix of rising stock markets, economic recovery hopes and speculative buying to hedge against a weak dollar. The City expects BP's underlying profits to come in at $3.15bn (pounds 1.9bn) on Tuesday - little more than a third of the $8.9bn (pounds 5.4bn) reported a year ago.

BP, which has been on a campaign to turn around its poor refining performance during the past 18 months, has been buoyed during the period by major discoveries in Angola and Mexico. But the firm also received unwelcome attention for its ties with Libya during the row over the release of Lockerbie bomber Abdelbaset Ali Mohmed Al Megrahi in the summer.

BP signed an exploration deal in the country in 2007 and made representations to the Government to speed up negotiations over a prisoner transfer agreement with the former rogue state to avoid threatening its interests.

Rival Royal Dutch Shell is expected to report profits of $2.5bn (pounds 1.5bn) - less than a quarter of last year's record haul - on Thursday. The firm may update on progress made under its Transition 2009 programme, which is likely to result in "substantial" job cuts this year.

New chief executive Peter Voser said in July that the firm needed to become a more efficient company, "with faster decision-making, sharper implementation of strategy, and more focus on costs and value".

Royal Bank of Scotland analyst David Cline said the firm's stronger project pipeline - especially in Qatar and Canada - gave it an advantage over peers.

"Much of this should begin paying its way soon, especially in 2011-12 when guidance is that new long-life projects will add around 625,000 barrels of oil equivalent to output, contributing to 2-3% per annum production growth versus declines in recent years," he said.

Cillit Bang to Vanish household goods giant Reckitt Benckiser has had a good recession so far and Tuesday's third-quarter results should continue the trend.

Helped by its 17 "powerbrands", the company wowed the City by upping targets for earnings and revenues growth at the half-year stage after stronger than expected sales. Analysts are looking for third quarter pre-tax profits of pounds 452m, up from pounds 380m a year earlier.

Reckitt also makes the heroin addiction treatment Suboxone, but predicts that 80% of revenues and profits could be lost to generic rivals in 2010. The firm lost exclusivity on the treatment in the US at the end of last month, although rivals have yet to emerge.

Royal Bank of Scotland analyst Julian Hardwick said: "Reckitt Benckiser may not show the improving sales trend that we expect to see elsewhere in the third quarter, but it has limited scope to do so given its stellar first half performance. Nevertheless, we expect another strong performance." The main focus of interest in GlaxoSmithKline's third-quarter figures on Wednesday will be how big a boost the drugs giant has been given by sales of its swine flu vaccine. Consensus forecasts suggest pre-tax profits of pounds 2.08bn for the three months to September, well up on the previous year's pounds 1.88bn.

The firm has received 22 government orders since August, bringing the total doses of its Pandemrix treatment ordered to 440 million.

AstraZeneca is also involved in developing a swine flu vaccine through its MedImmune business, which it said could deliver 200 million doses by March next year. The company was recently boosted by news that trials of a new blood thinning pill, Brilinta had produced a 16% drop in heart attack and stroke deaths.

Pre-tax profits for the third quarter are expected to be 6% up at $2.58bn (pounds 1.57bn).


OIL SLIPS: BP is due to publish its third-quarter figures today, just one of the UK heavyweights in the spotlight
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Publication:Western Mail (Cardiff, Wales)
Date:Oct 26, 2009
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