Oil majors Royal Dutch Shell Plc and Eni dashed hopes of an imminent turnaround for the industry, as sluggish economic recovery weighs on energy demand and prices, contributing to a big drop in profits.
Shell, Europe's largest oil company by market value, said on Thursday it was cutting 5,000 jobs, after net profit dropped 73 percent in the third quarter to $2.99 billion.
Italy's Eni said it was cutting its production forecast for the year due to lower gas demand, and project deferrals aimed at saving cash, as it unveiled a 58 percent drop in net profit.
The results and pessimistic outlook contrast with London-based BP Plc's third-quarter earnings which smashed forecasts by 50 percent, lifting sector shares on Tuesday on hopes the industry would weather the economic slump better than expected.
Shell and Eni's cautious comments echo worries in recent days about the fragility of the recovery, after weak U.S. new homes sales data, which also weighed on crude markets.
We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery, Shell Chief Executive Peter Voser said in a statement.
Analysts at Citigroup said Shell's results painted a disappointing picture and added Eni's comments would boost worries about its ability to grow production.
Shell's London-listed A shares traded down 4.5 percent at 1,825.5 pence at 1109 GMT on Thursday, while Eni's shares dropped 2.6 percent to 17.1 euros against a 1.0 percent drop in the DJ Stoxx European oil and gas sector index <.SXEP>
Oil companies are tackling the downturn by slashing costs, which doubled as oil prices soared between 2004 and 2008.
Voser said the restructuring program he launched just before taking the helm in July had lowered costs by $1 billion, excluding $2.5 billion in savings related to foreign exchange moves, in the first nine months of 2009.
BP said earlier this week it had achieved savings of $3 billion, including currency benefits, and is now targeting another $1 billion by year-end.
Operationally, the companies failed to shine, with Shell's oil and gas production in the quarter flat compared with the same period in 2008, at 2.93 million barrels of oil equivalent per day (boepd), while Eni's output dropped 5 percent.
Shell's Chief Financial Officer Simon Henry refused to promise a return to output growth in 2010, despite a downward trajectory for this year and a target of 2-3 percent average annual growth between 2009 and 2012.
In addition to a 40 percent drop in Brent crude prices and a 65 percent drop in UK and U.S. gas prices, the companies' earnings were hit by a collapse in refining margins.
Henry warned that the refining environment was unlikely to improve in the short or medium term, echoing comments from the CEO of Finnish refiner Neste Oil , which also unveiled a big drop in profits on Thursday.
Analysts expect oil companies to remain focused on paring overheads.
We believe we will see further cost reduction over the next 12-18 months well in excess of what we have seen, said Gordon Gray, oil analyst at Collins Stewart.
(Additional reporting by Stephen Jewkes in Milan; Reporting by Tom Bergin; editing by Paul Hoskins and Erica Billingham)