Royal Dutch Shell Group .com

THE WALL STREET JOURNAL: Royal Dutch/Shell Profits Are Stoked by Pricey Oil: “After an energy reserves-accounting scandal last year, Shell has re-invested heavily in its exploration and production business.” ( 28 April 05




April 28, 2005


LONDON – Royal Dutch/Shell Group said first-quarter earnings rose 40% from a year earlier, benefiting from an industry-wide bonanza stoking the bottom line of most of its large, integrated peers: high prices for the oil it pumps and high margins for refining that oil.


Shell reported net income of $6.8 billion, compared to $4.85 billion in the first quarter of 2004. The company said it recorded a net gain of $220 million in the quarter, which included gains from divestments, partly offset by a non-cash mark-to-market charge of $172 million related to long-term natural gas contracts. In the year ago period, Shell took a net credit of $490 million.


The profit translates into 1.51 euros per share of Royal Dutch Petroleum Co., The Hague, Netherlands, compared to 1.11 euros per share last year. London-based Shell Transport & Trading Co. earned 15 pence a share, up from 11 pence. The two companies jointly own the operating units of Shell , though they have said they will unify their holding structure this summer. Revenue rose 26% to $72.16 billion from $57.27 billion.


Like its biggest European competitor, No. 2 BP PLC, which reported sharply higher earnings earlier this week, Shell said its performance was largely due to the quarter's super high oil prices. Big companies like No. 1 Exxon Mobil Corp., BP and Shell -- which do everything from find and pump oil to refine and market petroleum products like gasoline -- have also benefited from higher profits from global refinery operations. (Exxon reports earnings later Thursday.)


After an energy reserves-accounting scandal last year, Shell has re-invested heavily in its exploration and production business. While much of the investment isn't expected to start bolstering the bottom line for years, the company appears to have chalked up some early gains in the first quarter.


Excluding divestments, natural gas production increased by 4%. Shell also boosted production from new fields in Britain and Malaysia and ramped up production in the U.S., more than offsetting older, declining fields in the U.S., Norway and Oman. Operational disruptions, however, drove overall hydrocarbon production lower.


Total petroleum production dropped off by 5%, to about 3.9 million barrels a day from 4.1 million barrels a day. Excluding the effects of divestments and the cancellation of a gas contract, however, total hydrocarbon output dropped just 2%.


Shell also reported strong revenue growth at its liquefied natural gas business, thanks to higher volumes and prices. Shell's share of LNG sales totalled 2.88 million tons of gas, up 15% from 2.51 million tons in the first quarter of 2004. But dividends from the business fell.


Shell has invested heavily in a series of capital-intensive LNG plants, which super cool natural gas into a liquid form allowing it to be shipped by tanker. Earlier this year, the company signed agreements in Qatar, Nigeria and Australia related to early-stage LNG projects.


Shell said total capital investment grew almost 4% to $3.24 billion from $3.12 billion in the first quarter of 2004. Spending for exploration and production projects soared 23%, to $2.36 billion from $1.91 billion a year ago. The industry has been buffeted by soaring oil-field costs amid the higher price of oil. Steel -- a critical component for oil-well construction -- and rates for oil-field equipment have risen sharply in recent months. Shell , however, didn't break out how much of the higher spending in the quarter was on new projects and how much was due to cost inflation.


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