Shell Earnings Rise 40 Percent
By Toby Sterling
The Associated Press
Thursday 27 July 2006
Amsterdam, Netherlands - Royal Dutch Shell PLC, Europe's second-largest oil company, said Thursday its second-quarter earnings jumped 40 percent as high oil prices offset production difficulties in Nigeria and the Gulf of Mexico.
Net profit rose to $7.32 billion from $5.24 billion a year earlier. Sales rose less than 1 percent to $83.1 billion from $82.6 billion.
Chief Executive Jeroen van der Veer said in a statement the earnings were "underpinned by overall good operational performance and not simply high energy prices."
Still, the main reason for the increase was higher oil prices, with earnings at Shell's oil exploration and production arm leaping to $4 billion from $2.75 billion, despite an 8 percent drop in production to 3.25 million barrels a day.
Prices for benchmark North Sea Brent crude averaged $69.51 a barrel in the quarter, compared with $51.65 a barrel a year earlier.
That was in line with other major oil companies reporting results this week. BP PLC said its second-quarter profit rose 30 percent to $7.3 billion, while ConocoPhillips reported a 65 percent increase to $5.18 billion. Exxon Mobil Corp., the world's largest publicly traded oil company, is due to report its earnings later Thursday.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said it was "good news" that Shell had beaten forecasts, in contrast to BP.
"But going forward, high oil prices will not continue to mask" if Shell's management makes mistakes, he said.
Shell said that excluding the damage caused by militant attacks on its operations in Nigeria and the fallout from hurricanes Katrina and Rita in the Gulf of Mexico, production would have been flat.
Shell is missing around 180,000 barrels per day in Nigeria because of recent attacks, and said Thursday it couldn't confidently predict when production will resume.
Van der Veer said that despite a pipeline rupture this week, possibly due to an attack by militants, the company has no intention of scaling back operations in the West African nation. "We are not afraid to invest in Nigeria," he said.
The Niger Delta region has been the scene of frequent disputes for years between oil companies and communities that demand a greater share of the wealth of Africa's largest crude producer. At least 31 expatriate workers have been held hostage by a variety of militant groups so far this year.
Shell's results Thursday beat earnings estimates compiled by Dow Jones, which had predicted a 17 percent rise in earnings, helped by strong refining margins. Shares rose 2.5 percent to 28.05 euros ($35.43) in Amsterdam trading.
At Shell's second-biggest division, which refines oil and sells it to consumers at the pump, profits increased 13 percent to $3.02 billion.
"Higher earnings due to stronger refining margins particularly in the United States, and increased trading profits from a positive trading environment were partially offset by the impact of lower retail marketing margins and reduced refinery utilization mainly in Europe," Shell said.
Shell's 2004-2005 accounting scandal, in which it was forced to repeatedly reduce the size of its proven oil reserves, continued to affect the company's earnings and prospects.
The company said Thursday it had reserved $500 million in the second quarter to pay shareholder class action lawsuits.
Shell has also been spending heavily to restore reserves, planning investments of $19 billion in 2006, and $21 billion in 2007, most of it in exploration and production.
But in 2005, the company pumped more oil than it added to proven reserves, and in Shell's 2005 annual report those reserves stood at around 11.5 billion barrels.
With Thursday's earnings, Shell said it has added "at least" 48 billion barrels of oil to unproven reserves via acquisitions in Canada in the first half of 2006, at a combined cost of some $2.6 billion.
In a conference call, Chief Financial Officer Peter Voser repeated that the company has a "fair prospect" to replace as much as it pumps between 2004-2008 as a whole.
"But we will not be shy to delay projects or even cancel projects because of the economic situation, cost inflation, and delay the recognition of proved reserves if that is the best economic outcome" for the company, he said.
While production in 2006 has been below analysts' expectations, he repeated that Shell's production is expected to rise to 3.5 million to 3.7 million barrels per day in 2007.
The Associated Press
Thursday 27 July 2006
Amsterdam, Netherlands - Royal Dutch Shell PLC, Europe's second-largest oil company, said Thursday its second-quarter earnings jumped 40 percent as high oil prices offset production difficulties in Nigeria and the Gulf of Mexico.
Net profit rose to $7.32 billion from $5.24 billion a year earlier. Sales rose less than 1 percent to $83.1 billion from $82.6 billion.
Chief Executive Jeroen van der Veer said in a statement the earnings were "underpinned by overall good operational performance and not simply high energy prices."
Still, the main reason for the increase was higher oil prices, with earnings at Shell's oil exploration and production arm leaping to $4 billion from $2.75 billion, despite an 8 percent drop in production to 3.25 million barrels a day.
Prices for benchmark North Sea Brent crude averaged $69.51 a barrel in the quarter, compared with $51.65 a barrel a year earlier.
That was in line with other major oil companies reporting results this week. BP PLC said its second-quarter profit rose 30 percent to $7.3 billion, while ConocoPhillips reported a 65 percent increase to $5.18 billion. Exxon Mobil Corp., the world's largest publicly traded oil company, is due to report its earnings later Thursday.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said it was "good news" that Shell had beaten forecasts, in contrast to BP.
"But going forward, high oil prices will not continue to mask" if Shell's management makes mistakes, he said.
Shell said that excluding the damage caused by militant attacks on its operations in Nigeria and the fallout from hurricanes Katrina and Rita in the Gulf of Mexico, production would have been flat.
Shell is missing around 180,000 barrels per day in Nigeria because of recent attacks, and said Thursday it couldn't confidently predict when production will resume.
Van der Veer said that despite a pipeline rupture this week, possibly due to an attack by militants, the company has no intention of scaling back operations in the West African nation. "We are not afraid to invest in Nigeria," he said.
The Niger Delta region has been the scene of frequent disputes for years between oil companies and communities that demand a greater share of the wealth of Africa's largest crude producer. At least 31 expatriate workers have been held hostage by a variety of militant groups so far this year.
Shell's results Thursday beat earnings estimates compiled by Dow Jones, which had predicted a 17 percent rise in earnings, helped by strong refining margins. Shares rose 2.5 percent to 28.05 euros ($35.43) in Amsterdam trading.
At Shell's second-biggest division, which refines oil and sells it to consumers at the pump, profits increased 13 percent to $3.02 billion.
"Higher earnings due to stronger refining margins particularly in the United States, and increased trading profits from a positive trading environment were partially offset by the impact of lower retail marketing margins and reduced refinery utilization mainly in Europe," Shell said.
Shell's 2004-2005 accounting scandal, in which it was forced to repeatedly reduce the size of its proven oil reserves, continued to affect the company's earnings and prospects.
The company said Thursday it had reserved $500 million in the second quarter to pay shareholder class action lawsuits.
Shell has also been spending heavily to restore reserves, planning investments of $19 billion in 2006, and $21 billion in 2007, most of it in exploration and production.
But in 2005, the company pumped more oil than it added to proven reserves, and in Shell's 2005 annual report those reserves stood at around 11.5 billion barrels.
With Thursday's earnings, Shell said it has added "at least" 48 billion barrels of oil to unproven reserves via acquisitions in Canada in the first half of 2006, at a combined cost of some $2.6 billion.
In a conference call, Chief Financial Officer Peter Voser repeated that the company has a "fair prospect" to replace as much as it pumps between 2004-2008 as a whole.
"But we will not be shy to delay projects or even cancel projects because of the economic situation, cost inflation, and delay the recognition of proved reserves if that is the best economic outcome" for the company, he said.
While production in 2006 has been below analysts' expectations, he repeated that Shell's production is expected to rise to 3.5 million to 3.7 million barrels per day in 2007.
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