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Shell’s Profits Soar

Posted by mhudema on July 31, 2008

Shell reports $11.6 billion profit despite output dip
Bloomberg News
July 31, 2008, 7:35AM

Royal Dutch Shell said second-quarter profit climbed 33 percent on
record oil prices and pledged to increase investment spending to revive
production growth.

Net income rose to $11.56 billion, or $1.87 a share, from $8.67 billion,
or $1.38, a year earlier, The Hague-based company said today. Excluding
gains or losses from holding inventories and one-time items, profit was
$7.83 billion, which didn’t include additional fair value adjustments of
$750 million. The median estimate of 11 analysts surveyed by Bloomberg
was for profit of $8.3 billion.

Shell joined Eni SpA and Repsol YPF SA, the biggest Italian and Spanish
oil companies respectively, in reporting higher earnings today after
U.S. oil futures climbed above $140 a barrel for the first time in June.
Chief Executive Officer Jeroen van der Veer will spend as much as $36
billion on acquisitions and drilling this year, described by Shell as
“one of the largest investments in the industry” worldwide.

“These are a good set of numbers,” Jason Kenney, an Edinburgh-based
analyst at ING Wholesale Banking, said in a telephone interview today.
“Earnings at exploration and production were excellent,” said Kenney,
who has a “buy” rating on the stock.

Shell’s London-listed Class A shares added 11 pence, or 0.6 percent, to
1,848 pence as of 11:30 a.m. in London. The stock is down 12 percent
this year, compared with a 15 percent decline for BP Plc, Europe’s
second-biggest oil producer, which earlier this week posted a 28 percent
increase in profit to $9.47 billion.

Repsol said net income increased 11 percent in the second quarter to 905
million euros ($1.41 billion) after rising oil prices boosted
inventories. Eni posted a 52 percent jump in earnings to 3.44 billion euros.

Exxon Mobil Corp., the world’s biggest energy company, may later today
report a 26 percent increase in net income to $12.9 billion, the highest
ever for a U.S. company without one-time gains, according to the average
of seven analyst estimates compiled by Bloomberg.

Of the 34 analysts tracked by Bloomberg who cover Shell, 22 recommend
buying the shares, eight advise holding the stock and four say “sell.”

Sales rose 54 percent to $131 billion in the latest quarter, Shell said.
The company earmarked between $35 billion and $36 billion for spending
on acquisitions and drilling programs this year. It previously targeted
net capital spending of about $26 and $27 billion for 2008.

Shell’s earnings are “not brilliant, but the long term still looks good
as they invest to bring a lot of unconventional fields onstream,” Andy
Lynch, a portfolio manager who oversees $2.9 billion at Schroder
Investment Management in London, said by e-mail. “This drives growth
2010-2015 which markets should start to discount soon.”

Overall crude and natural-gas output fell 1.6 percent from a year ago.
Including bitumen from oil sands, production averaged 3.126 million
barrels of oil equivalent a day.

Shell’s output has fallen for the past five years as the company ceded a
stake in Russia’s Sakhalin-2 venture and militant attacks in Nigeria
kept fields offline.

Shell’s earnings “were good but not exceptional like BP’s,” said David
Buik, a market analyst at BGC Partners in London. “Nigeria production is
a worry and margins have fallen” in the Gulf of Mexico, he said.

The company lost 195,000 barrels a day in production in Nigeria in the
second quarter as militants attacked facilities and blew up pipelines,
Van der Veer told reporters today. Shell suspended export obligations
for its Bonny Light crude this week after the latest militant raid. As
much as 220,000 barrels a day of Shell’s share of daily output is
currently shut-in.

Shell is turning to so-called unconventional projects to replace aging
fields as high oil prices encourage energy-rich nations to hold onto a
bigger slice of their resources.

Earlier this month, Shell agreed to buy Duvernay Oil Corp. for about
C$5.9 billion ($5.8 billion), including assumption of debt, to expand
gas output from hard-to-tap formations in western Canada.

Van der Veer said he’s “keen to make progress” on securing oil and gas
contracts in Iraq as the government negotiates technical services
contracts with foreign oil companies to almost double crude output to 4
million barrels a day in the coming years.

Profit at Shell’s refining business slid 63 percent in the quarter on
higher costs as oil prices outpaced gains in gasoline. Refining margins
fell by half to $8.19 a barrel in the second quarter from $16.61 a year
earlier, according to BP data.

_ http://www.bloomberg.com <http://www.bloomberg.com/> _

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