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Financial Times: Shell sets $23bn profits record

By Rebecca Bream and Tom Griggs
Published: February 3 2006 02:00
Royal Dutch Shell broke UK corporate profit records yesterday, as the impact of hurricanes in the US and recent unrest in Nigeria failed to counteract the benefit of high oil prices.
The group reported current cost of supply profits, the industry standard, for 2005 of $22.9bn (£12.9bn), up 30 per cent from $17.6bn in 2004. Revenues rose 12 per cent to $379bn.
But analysts said earnings were lower than expected and failed to match up to the $36.1bn profits unveiled by larger rival ExxonMobil on Monday.
Shell said production fell 7 per cent to 3.5m barrels of oil per day (bpd), after hurricanes affected production in the Gulf of Mexico and a production-sharing contract in the Middle East ended. The group added that there would be little, if any, growth in production in 2006.
Jeroen van der Veer, chief executive, said he was confident of finding new oil reserves to replace those pumped from the ground. He rejected suggestions that the world was running short of oil.
“The theory of peak oil, that oil production has peaked, is correct if you look at easy oil close to markets, like west Texas and the North Sea,” he said. “But think about deep-water drilling, think about the Arctic.”
Mr Van der Veer said Shell would be increasingly looking for oil in frontier areas, as more companies entered the exploration business. “The market will become more and more competitive. We like to go to unconventional [locations], where we can use our project skills.”
He said cost inflation would account for about 20 per cent of the extra funds given by Shell to exploration and project development. Shell currently replaces 70-80 per cent of its proven reserves each year, but says it will reach 100 per cent replacement by 2008. It also aims to expand production to between 4.5m and 5m bpd by 2015.
The company has pledged to spend $19bn a year on new schemes, focusing on long-term projects in Nigeria, China, Oman, Russia and Malaysia. This excludes investment in the minority share of the Sakhalin project off the east coast of Russia. Exploration, discoveries, appraisals programmes and new business development added more than 2bn barrels of oil equivalent to reserves in 2005.
Mr Van der Veer said out of 12 “big cat” wells drilled in 2005, seven found hydrocarbons. A “big cat” well is one the company expects to yield 100m barrels of oil equivalent. He said 15 to 20 such wells would be drilled this year, but declined to say where.
Peter Voser, finance director, said Shell was not looking at large acquisitions, in spite of its large cash balance, and was focusing on “bolt-on” deals worth $10bn or less.
Shell's B shares fell 49p to £19.56 in London.
Royal Dutch Shell broke UK corporate profit records yesterday, as the impact of hurricanes in the US and recent unrest in Nigeria failed to counteract the benefit of high oil prices.

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