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THE WALL STREET JOURNAL: Shell Net Profit +42% On High Oil, US Margins ( 28 April 05



April 28, 2005


(This updates an item that ran around 0730 GMT, adding comments from analysts and the chief financial officer.)


By Benoit Faucon



LONDON -- Royal Dutch/Shell Group (RD, SC) Thursday posted a 42% rise in net profit for the first quarter on soaring oil prices and higher refining margins in the U.S.


The world's third-largest publicly-traded oil company by market capitalization said net profit rose to $6.673 billion for the three months ended March 31, from $4.702 billion.


Profit based on the current cost of supplies stood at $5.548 billion for the quarter, much higher than market expectations of $4.683 billion, and up 28% compared with $4.332 billion in the year-earlier period.


The current cost of supplies, or CCS, - the figure most closely watched by analysts - strips out the impact of oil prices on inventories.


Shell is reporting for the first time using International Financial Reporting Standards.


"The first quarter was an excellent start of the year for Shell with strong financial performance across all of our businesses," Chief Executive Jeroen van der Veer said in a statement.


Shell had already posted the largest-ever U.K. corporate profit at $18.536 billion for 2004 on Feb. 3.


The company's first-quarter profit reflects the rise in oil prices with Brent averaging $48 in the quarter, against $32 in the year-earlier period.


First-quarter CCS earnings in the downstream division rose 94% to $1.880 billion, compared with $1.183 billion in the year-earlier period.


Shell said the higher profits for its downstream operations are due to increased refining margins in the U.S. and Asia Pacific, but these were partly offset by the impact of lower retail margins in the U.S., lower trading results and higher costs mainly due to a weaker U.S. dollar.


Results at the downstream unit also included net gains of $427 million mainly from divestments. This compares with a net gain of some $100 million a year ago.


KBP Peel Hunt analyst Antoine Leurent said the recovery of Shell 's chemicals unit also contributed to the better-than-expected earnings.


The chemicals division posted a $449 million CCS profit, against $221 million for the same period last year.


Investec Securities said in a note that the "strong set of results is likely to drive increases in consensus forecasts." The broker said it will retain its 'buy' rating for now.


Upstream production dropped 5% to 3.847 million barrels of oil equivalent a day, from 4.064 million b/d one year earlier. CitiGroup Smith Barney had predicted a 6% fall in production.


At a press conference call, Chief Financial Officer Peter Voser reiterated that the company expects its production in the lower range of its 3.5 to 3.8 million b/d forecast for 2005.


Since it first disclosed early last year that it had drastically overstated its reserves, Shell has reduced its reserves figure by about one-third. The latest cut - its fifth overall - was announced on Feb. 3.


Voser also confirmed that the Omani government is in talks with Occidental Petroleum Corp. (OXY) over an operator's licence for an oil field where Royal Dutch/Shell Group (RD, SC) is a 34% shareholder.


An award to Occidental would be a setback for Shell's strategy as Oman is one of its biggest producers in the oil-rich Middle-East.


Regarding the company's $15 billion divestment program, the CFO also said Shell is close to selling its 50% stake in Basell, a plastics joint-venture with BASF AG (BF).


At 0949 GMT, shares in Shell Transport & Trading PLC - a 40% component of Royal Dutch/Shell - were up 2 pence on the day at 470 pence in London.


Company Web site:


-By Benoit Faucon, Dow Jones Newswires; +44-20-7842-9266;


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