Third quarter updates from the three big integrated UK oil companies were a mixed affair although Royal Dutch Shell (RDSB) is emerging as an obvious winner as it successfully pursues the kind of capital efficiency demanded by the market. Continuing volatility in oil prices is likely to show up to a greater extent in fourth quarter numbers and for now we remain cautious on BG (BG.), BP (BP.)and Shell.

Charles Stanley upgrades Shell from ‘hold’ to ‘buy’ in the wake of numbers (30 Oct) which were ahead of expectations with underlying earnings on a current cost of supplies (CCS) basis at $5.8 billion against consensus forecasts for $5.5 billion. The broker sees reasons for optimism despite a plunging crude market. It notes ‘inflationary cost pressures are easing and the super-majors have extensive downstream (refining) operations which benefit from lower prices’.

In contrast, BG was 5% south of consensus on both net income and earnings before interest and tax (EBIT) although the picture for BP was brighter with improving margins and an enhanced dividend.

Issue Date: 07 Nov 2014