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BLOOMBERG: Shell Profit Beats Estimates; Nigeria Production Hurt (Update2)

Shell Profit Beats Estimates; Nigeria Production Hurt (Update2)


May 4 (Bloomberg) — Royal Dutch Shell Plc, Europe's second-largest oil company, said first-quarter profit rose as near-record oil prices compensated for output losses caused by violence in Nigeria and hurricane damage in the Gulf of Mexico.


Net income increased 3 percent to $6.89 billion, or $1.05 a share, from $6.68 billion, or 99 cents a share, a year earlier, The Hague-based company said today. Profit excluding inventory changes beat analyst estimates.


“The oil price has given them some healthy cushion to offset supply'' disruptions, Stephen Pope, the head of equity research at Cantor Fitzgerald LP in London, said in an interview. “I'm still quite comfortable with the oil companies.''


Shell's earnings compare with a 15 percent decline in profit at BP Plc and a 6.9 percent increase at Exxon Mobil Corp. Shell Chief Executive Officer Jeroen van der Veer is struggling to maintain oil production amid militant attacks in Nigeria and damage from last year's U.S. hurricanes, while costs escalate for projects from Russia to Qatar.


Profit excluding changes in inventory values rose 12 percent to $6.09 billion, compared with a median forecast of $5.67 billion from seven analysts surveyed by Bloomberg News.


Shell's London-traded `A' shares advanced 13 pence, or 0.7 percent to 1,873 pence at 8:38 a.m. local time. They are up 5.8 percent this year, compared with a 14 percent gain at Exxon Mobil and 10 percent at BP, its two larger rivals.


BP, the largest oil company in Europe, said April 25 its first-quarter earnings dropped to $5.62 billion after taxes rose and Gulf of Mexico production fell. Two days later, Exxon Mobil, the world's biggest oil company, reported first-quarter profit increased to $8.4 billion.




Oil and gas production fell 3 percent from the year-earlier quarter to 3.75 million barrels a day of oil equivalent. Excluding hurricane and pricing effects, output would have been up 1 percent on the year, Shell said.


“Our overall performance was satisfactory despite a series of operational challenges in the quarter, created by external factors in Nigeria and the Gulf of Mexico,'' Van der Veer said in today's statement.


U.K. Chancellor of the Exchequer Gordon Brown in December boosted the oil industry's corporate tax bill to 50 percent of earnings from 40 percent. Along with higher taxes, Shell and its peers also face rising costs in the search for oil in less accessible locations, as service companies increase prices for equipment and labor.


Shell's Sakhalin project in Russia, the centerpiece of its plan to increase reserves and production through drilling new wells rather than by making acquisitions, doubled last year to $20 billion.


Wrong Target


Shell is struggling to find as much as it produces, and last year replaced 67 percent of the oil and gas it pumped, versus 95 percent at BP, using U.S. Securities and Exchange Commission accounting rules.


The company today backed off from its previous target of replacing 100 percent of its reserves over a five-year period ending 2008, saying that some of its unconventional resources may not qualify as proved reserves under SEC rules.


“We still have a fair prospect of achieving that target,'' Van der Veer said. “However, we do not want this target to drive the wrong business decisions, either in the timing of projects, or in the type of resources that we prioritize.''


Project Delays


The reserves dilemma is a hangover from 2004 when Shell admitted it had overstated its reserves, leading to lawsuits, fines and the ouster of its chairman.


In addition, Shell said in its annual strategy outlook today that competition for materials and skilled labor means it will probably delay some longer-term projects. It didn't specify which ones.


Shell may delay its Pearl gas-to-liquids project in Qatar, a project to make diesel from natural gas, because of increased prices for construction services, three contractors with knowledge of the project told Bloomberg yesterday. The cost had already risen by at least a fifth to $6 billion in two years.


Shell is already spending more on exploration and less on share repurchases than rival BP. It bought back $1.5 billion worth of its shares in the past quarter, compared with $4 billion at BP.


Shell said it expects to “exceed our previous guidance for up to $5 billion of share buybacks in 2006.'' The company also said today it will pay a dividend of 25 euro cents a share for the first quarter, 9 percent more than a year earlier.


Capital expenditure will rise to $21 billion in 2007, from $19 billion this year, the oil company said.


`Under a Cloud'


“Shell has been operating for two to three years now under a cloud and needs to convince investors that it can grow revenue and profits,'' Tim Guinness, who manages $2.1 billion in funds including Investec Asset Management's Global Energy Fund, said in an interview yesterday.


“They're trying to do things a bit differently, not just explore and find oil; they are trying to go for unconventional projects that are big capital investments with long lives,'' he said. “I'd like them to convince the world they've stabilized the conventional business and that the unconventional gives them a bright future. It could improve their stock.''


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—-With reporting by Jeremy Naylor in London. Editor: Coulter (jwc/djr).



To contact the reporters on this story:

Stephen Voss in London at [email protected];


Dale Crofts in Amsterdam at [email protected]

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