Shell plans to invest $36bn

Surging oil prices helped Royal Dutch Shell record another quarter of bumper profits in the three months to June, even as production of oil and gas remained flat.

The company yesterday unveiled the largest expenditure programme in its history, saying it would spend $36bn (£18.2bn) in 2008 compared with $25bn last year, as it seeks new sources of oil and gas to boost reserves and production and to exploit existing resources better.

Using current cost of supplies (CCS), which adjusts for changes in inventory values, Shell reported earnings of $7.9bn (£3.9bn), 5 per cent higher than the same period last year.

On a “clean” CCS basis – after an adjustment to reflect commodity price effects – second-quarter earnings were $8.6bn, 24 per cent higher than the same quarter of 2007.

For the first six months, CCS earnings were 8 per cent higher than the same period last year at $15.7bn.

Oil and gas production in the second quarter, including oil sands, was 3.126m barrels of oil equivalent a day, compared with 3.178m last year. Excluding divestments and pricing effects, it was flat. Shell suffered from a significantly weaker performance in its downstream business, with pressure on refining margins.

The extra capital spending will pay for commitments on pending deals, inflation costs and spending on oil and gas projects that offer fast returns. A large portion will be soaked up by Shell’s C$5.9bn (£2.9bn) bid for Duvernay Oil of Canada.

Jeroen van der Veer, chief executive, said Shell would only invest in regions that were reasonably secure. It has been one of the biggest casualties of rebel attacks on producers in Nigeria.

The interim dividend is raised to 40 cents (36 cents) and the shares fell 23p to close at £17.82.

* FT Comment

Shell faces similar problems to its peers, how best to secure resources. The surprise extra investment is intended to help address this and as long as the oil price remains high cash should be easy to come by. Shell has prospered at BP’s expense in recent years as a result of the latter’s travails in the US, but while the two have forward price-earnings ratios which are roughly in line, according to Cazenove, BP may offer other attractions, not least a chunkier dividend yield and better cover.