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THE WALL STREET JOURNAL: Shell Posts 4% Profit Decline, Struggles With Falling Output

February 2, 2006 3:00 a.m.

Royal Dutch Shell PLC said its fourth-quarter earnings fell 4%, partly as a result of a big, one-time gain in the year-earlier period.
Soaring oil and natural-gas prices boosted the bottom-line at Shell, but the Anglo-Dutch energy giant continued to struggle with declining output and an inability to replace all the oil and natural-gas reserves it depleted last year through production.
Shell said net income for the quarter ended Dec. 31 was $4.37 billion, or 66 cents a share, down from $4.57 billion, or 68 cents a share, a year earlier. The results reflected a net gain for special items in the latest quarter of $34 million, compared to a net gain in the fourth quarter of 2004 of $499 million.
Shell's revenue fell 1% to $75.5 billion from $76.3 billion in the year-earlier quarter. Shell's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.
Shell said total oil and gas production fell 9% to 3.5 million barrels of oil equivalent a day from 3.84 million a day a year earlier.
For the full year, Shell said it earned $25.31 billion, 37% higher than for 2004. The large annual profit comes as governments around the world ratchet up the pressure on oil companies benefiting handsomely from today's sky-high energy prices. In addition to threats by some U.S. lawmakers to push new taxes on oil companies, countries as diverse as Britain and Bolivia have signaled they plan to ratchet up their take of oil revenue at the expense of companies. Despite a handful of sharply higher tax regimes around the world and sharply escalating costs for everything from drilling rigs to engineers, high oil prices have more than made up the difference for Shell and other large oil companies.
The company said it expects its closely watched reserve-replacement ratio – the rate at which a company finds new reserves of oil and gas to replace the energy it pumps out of the ground each year – would be between 60% and 70% in 2005. Companies typically try to achieve 100% reserve replacement to satisfied investors worried about future production growth.
While other companies have struggled recently replacing reserves, Shell has been one of the industry's biggest laggards. It spent the last two years recovering from a devastating disclosure that its reserve base was much smaller than it had been telling investors.
Write to Chip Cummins at [email protected]

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