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The Times: Shell profits bring little cheer

By Carl Mortished, International Business Editor
ROYAL DUTCH SHELL yesterday announced the largest profit ever recorded by a company on the London Stock Exchange. And the annual combined profits of Shell, ExxonMobil and that anticipated from BP next week, well exceed the annual income of a small nation such as Bulgaria, Sri Lanka or Tunisia.
So much money but not much cheer for the energy titans because they are struggling to achieve their core purpose: to meet the world’s ever-increasing demand for fuel. ExxonMobil suffered a decline in production after years of flat performance, Shell suffered its third year of falling oil and gas volumes, and analysts expect BP and Total to show small declines in output for 2005.
The image of a champagne reception on the bridge while the mechanics struggle in the engine-room to get the propellers turning is embarrassing to the oil industry.
Jeroen van der Veer, Shell’s chairman, was at pains to explain to motorists that Shell’s $22.9 billion (£12.9 billion) profit had little to do with UK petrol retailing, still an impoverished offshoot of the multinational empire. The company pays $18 billion in taxes worldwide, of which $1.2 billion are pocketed by Inland Revenue — a figure that may rise this year with the Chancellor’s increase in oil and gas taxation.
Investment levels have soared: the company spent $15 billion last year and will spend $19 billion this year. Shell drilled 15 major prospects in 2005, known as “big cats”, with the potential of delivering at least 100 million barrels of oil or gas. Of the twelve that have been assessed, seven were successful in Australia, Malaysia, Norway and Nigeria.
It is a good performance in an industry where wildcat exploration has a one in twelve success rate and exploration in known hydrocarbon regions generally yields one in three.
Still, the output challenge remains. This year’s production figures from the majors will be peppered with qualifications — hurricanes, riots and the depressing effect of high oil prices on output governed by production sharing contracts.
These should not be seen as excuses in an industry for which war and revolution are as frequent problems as bad weather. Last week Repsol YPF, the Spanish oil major, had to remove a quarter of its oil reserves, in large part because Bolivia’s new tax laws make further investment uneconomic.
With global oil demand rising at between 2 and 3 per cent per year and Opec running at near full capacity, it is not reassuring that the world’s top three private sector producers are shrinking.
What can you do with $23bn (£13bn)?
Give every Tesco customer in the UK a 50 per cent refund on everything they bought last year
Rival Lebanon for size, the world’s 103rd largest economy, according to the latest IMF figures
Buy every Shell employee an Aston Martin Vantage sports car, with change to spare
Clear 80 per cent of student debts built up with the Student Loans Company
Pay off all secured and unsecured loans taken out by consumers in December 2005

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