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The Scotsman: Shell breaks UK record with £12.9bn profit

MARTIN FLANAGAN
 CITY EDITOR ([email protected])

OIL giant Royal Dutch Shell smashed the yearly profits record for a UK company yesterday as roaring oil prices helped it drive profits up 12 per cent to $25.3 billion (£12.9bn) in 2006.

It came as Exxon Mobil, the American oil leviathan, reported the most profitable year in US corporate history, with 2006 earnings totalling $39.5bn.

Jeroen van der Veer, Shell’s chief executive, deflected suggestions that his group was exposed to increasing risk, from Sakhalin Island off Russia to the violence in Nigeria and the controversial possibility of it moving into Iran.

After pressure from the Russian government on environmental issues, Shell had to cede majority control of the Sakhalin liquefied natural gas project – the largest in the world – to state-owned Gazprom.

Some of Shell’s production has been closed down in Nigeria following civil strife and it is believed the US government is unhappy about the British/Dutch oil major’s consideration of a project in Iran, one of the “axis-of-evil” targets. for the US president, George Bush.

Van der Veer said: “The best way is to spread our risks around the world, both political risks and fiscal risks. The best an oil company can do is have a [geographical] spread of all kinds of risks.”

However, he admitted the company was feeling the heat over its proposed multi-billion dollar investment in a gasfield in Iran, a country under US pressure for its atomic work, threats to Israel and alleged interference in Iraq.

Shell and Spain’s Repsol have signed a preliminary deal to develop part of Iran’s giant South Pars gasfield, despite Washington urging its allies not to invest in the country. Tehran values the deal at $10bn.

Van der Veer said a final decision would be taken on the project in about a year.

He added: “I would like to emphasise that we have here quite a dilemma. This is Iran.

“They are the number two in oil and gas reserves in the world. But we have all the short-term political concerns.”

Shell’s trading performance was helped by a strong final quarter of 2006, when profits rose 11 per cent to $6bn.

Tony Shepard, at broker Charles Stanley, said: “Overall Q4 results were resilient but annual earnings of 25.4 billion could be the peak in this earnings cycle.”

It was not all good news for the group, however, with it having to slash its production targets because of the continuing problems in the Niger Delta and its relinquishing of control of Sakhalin.

Full-year output in 2006 was down 1.3 per cent at 3.47 million barrels of oil equivalent per day.

Van der Veer said overall oil and gas production in 2007 would be in the region of 3.3 million to 3.5 million barrels of oil a day.

He added: “The reduced Nigeria outlook and divestment, including the dilution of our stake in Sakhalin II, mean we expect only modest production growth to the end of the decade.”

Shell had previously said it would produce up to 3.8 million barrels of oil a day in 2007, and had set a target of up to four million barrels for 2009.

Shell’s £12.9bn profit outstrips the £11.9bn made by banking giant HSBC and £11.1bn racked up by oil rival BP in 2005.

How numbers add up across the board for British-Dutch oil major

£12.98 billion
Shell’s profit in 2006, a UK record, which equates to:

£1.47 million
Profit every hour of the year.

3.47 million
The average number of barrels of crude oil Shell produced a day last year, a fall of 1.3 per cent on 2005, largely due to strife in Nigeria, where fields have been shut.

4 million
The number of barrels a day the company is aiming to produce by 2009.

£8.3m
The amount Shell gave back to investors in 2006, through dividends and a major share buyback programme.

2 billion
The number of barrels of oil Shell claims to have added to its proven reserves in 2006, 150 per cent of the oil it produced. However, some experts dispute its methodology, which included oil sand projects, which are excluded in many measurements.

1833
Marcus Samuel forms an import company to sell seashells to London collectors, which would later give the company its name and Pecten logo, one of the best known corporate symbols in the world.

1892
His son, also Marcus Samuel, decided money could be made importing lamp oil while on a seashell collecting trip in the Caspian Sea area, commissioning the world’s first purpose built oil tanker, the Murex.

1907
Hague-based Royal Dutch Petroleum Company and the London-based Shell Transport and Trading Company merged in a bid to take on American giant Standard Oil.

109,000
Shell’s worldwide employees, including around 8,000 in the UK.

45,000
Approximate number of petrol station Shell operates worldwide, including around 1,000 in the UK.

2,500
Workers Shell employs in Aberdeen and offshore in the North Sea

£25m
Cost of Shell’s new offices in the Granite city.

20 million
The number of customers the retail network serves every day of the year, around 500,000 of these in the UK

3.9 billion
The barrels of oil Shell was forced to cut from its reserve estimates in 2004 in the wake of an over estimation scandal. Some 20 per cent of the total reserve estimates, the furore led to Chairman Phillip Watts being forced to resign from the company.

140
Countries Shell operates in worldwide.

400 million
Barrels cut from Shell’s reserves after the Kremlin put pressure on it to sell a controlling stake in the Sakhalin-2 project in Russia to Gazprom.

$60.13
The average Shell realised per barrel in 2006, almost $10 more than 2005, which led some commentators to call the latest figures “flattering”.

1,746p
Shell’s share price at yesterday’s close, up 1.87 per cent.

£162bn
Shell’s total revenue in 2006, up 4 per cent in 2005.

0.25
Q4 dividends per share. From next year, dividends, like results, will be reported in US$.

25%
The proportion of the UK’s oil and gas supply operated by Shell.

http://business.scotsman.com/index.cfm?id=173412007

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