Its been a bad year so far for the oil barons. The oil price has plummeted through the floor and so have their profits.

Yesterday BP announced a drop of 62 per cent and today Shell announced a similar reduction of reduced profits of 58 per cent, the first time it has posted a quarterly loss in 10 years.

Whilst this overall figure is grabbing all the headlines, buried deep in Shell analysts presentation is the fact that Shell’s new jewel in the crown – its carbon intensive tar sands operations – made a loss in the first quarter of 2009, compared to a profit of $249 million in the same quarter last year.

This is really bad news for Shell, where lower earnings were due to lower oil prices on revenues, higher operating costs, and higher royalty expenses.

On a wider note the figures show that Shell is failing to cover its capital spending programme, which is the biggest amongst its peers. In a huge business gamble, Shell is betting on capital-intensive and climate intensive projects such as a gas-to-liquids plant in Qatar and the oil sands in Canada to boost production from 2010.

If however, the oil price stays low, Shell may not have the revenue to develop them quickly enough. Moreover, if the carbon intensity of these projects are deemed to be too high, Shell’s whole business strategy could be in trouble.

Just this week, Shell was facing calls to disclose future carbon liabilities from its tar sands operations. The UK Co-operative Financial Services and environmental charity WWF-UK are launching a campaign for a legal requirement for companies including Shell and BP to include this information in financial reporting.