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Shell Reports Increase in Profit as Oil Prices Climb

Bloomberg

By Fred Pals – Oct 28, 2010 7:12 AM GMT+0100

Royal Dutch Shell Plc, Europe’s largest oil company, posted a 7 percent increase in third- quarter profit as a recovery in energy demand lifted oil prices.

Net income rose to $3.46 billion from $3.25 billion a year earlier, The Hague-based Shell said in a statement today. Excluding one-time items and inventory changes, profit beat analyst estimates.

Shell is targeting hard-to-reach rock formations in Australia, the U.S. and China, as well as projects in Qatar, to reverse a seven-year drop in output. Chief Executive Officer Peter Voser plans to invest $40 billion in the Americas through 2014, at the same time close rival BP Plc’s U.S. ambitions have suffered as a result of the Gulf of Mexico oil spill.

“Shell’s growth will outpace BP’s for the third consecutive quarter, confirming a significant reversal which will also be the feature for the next two or three years,” Peter Hutton, head of research at NCB Stockbrokers Ltd. in London, wrote in a note before the results were released.

Shell is the first of Europe’s biggest oil companies to report earnings. It will be followed by Total SA tomorrow and BP on Nov. 2. Exxon Mobil Corp., the largest U.S. oil company, is scheduled to report results later today. ConocoPhillips, the third-largest U.S. oil producer, said yesterday that net income more than doubled to $3.06 billion.

Excluding one-time items and inventory changes, Shell earned $4.9 billion. That beat the $4.3 billion mean estimate of 18 analysts surveyed by Bloomberg.

Share Performance

Shell’s Class A shares traded in London fell 0.9 percent to 1,977 pence yesterday. The stock is up 5 percent this year, compared with a 30 percent decline for BP, which at one point lost more than half its market value as the costs of cleaning up the worst oil spill in U.S. history escalated.

Voser has accelerated asset sales of as much as $8 billion, cut 7,000 jobs and reduced exposure to the less profitable downstream business by selling refineries. Yesterday, it agreed to sell most of its refining and marketing business in Sweden and Finland to a major shareholder of Finnish energy company St1 Oy for $640 million.

Last month, Shell started production at the 100,000 barrel- a-day expansion of its Athabasca oil sands development in Canada, while its BC-10 offshore block in Brazil reached production of 95,000 barrels a day. The producer plans to increase production of heavy crude by 60 percent in the Americas through 2020 and also applied to drill a well off Alaska next year. The $19 billion Pearl gas-to-liquids plant in Qatar will be fully operational in the first quarter of 2012.

‘Much Closer’

“Shell is now that much closer to getting Qatar GTL on stream,” said Iain Armstrong, an analyst at broker Brewin Dolphin Ltd. in London. “BP risks getting left in the wilderness.”

Oil futures averaged $76.21 a barrel in the quarter, a 12 percent increase from a year earlier, and natural-gas futures rose 23 percent.

Shell also benefited from improved refining margins. Profit from turning crude into fuel rose about 33 percent in the third quarter from a year earlier, according to BP. Its Global Indicator Margin, a broad measure of refining profitability, increased to $4.53 a barrel from $3.41.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected]

To contact the editor responsible for this story: Will Kennedy at [email protected]

SOURCE

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