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Shell Net Little Changed, Projects Offset Lower Output

By Eduard Gismatullin – Apr 26, 2012 7:48 AM GMT+0100

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, reported first-quarter earnings that beat estimates and raised a target for asset sales this year.

Excluding one-time items and inventory changes, Shell posted profit of $7.28 billion, compared with the $6.7 billion average estimate of eight analysts surveyed by Bloomberg.

Chief Executive Officer Peter Voser said asset sales this year are likely to be in excess of $4 billion, compared with earlier expectations of $2 billion to $3 billion. The company generated additional cash in the quarter from new projects in Canada’s Athabasca oil sands and Qatar as Brent crude traded 12 percent higher than a year earlier.

“Energy demand fundamentals are robust, but with near-term volatility in energy prices as a result of economic and political events,” Voser said in a statement today.

Brent crude averaged $118.45 a barrel in the first quarter, compared with $105.52 a year earlier. That helped counter a decline in U.S. natural-gas prices, which sank to their lowest quarterly average in 10 years.

Net income of $8.72 billion compared with profit of $8.78 billion a year earlier, The Hague-based Shell said. About $2.4 billion of assets were sold during the quarter.

The company is the first of Europe’s biggest oil producers to publish earnings; Total SA and BP Plc release results on April 27 and May 1, respectively. The U.S.’s Exxon Mobil Corp. will report later today.

Raise Output

Oil and gas production rose to 3.55 million barrels a day from 3.50 million barrels a year earlier. Shell plans to raise output to about 4 million barrels a day as soon as 2017.

“The record result in upstream was driven by volumes from the growth projects,” said Stuart Joyner, an analyst at Investec Securities Ltd. in London.

Voser agreed in February to raise the dividend this year for the first time since 2009 on a forecast for a 50 percent increase in cash flow from operations through 2015.

The company has boosted output at its oil-sands project in Canada’s Alberta region and expects its Pearl gas-to-liquids venture in Qatar to reach full capacity by the middle of the year. Shell is also expanding in East Africa, where it agreed to buy Cove Energy Plc this week for about $1.8 billion.

Cove has a stake in a gas block off Mozambique, which may connect to a proposed liquefied natural gas plant that would process the fuel for Asian markets. Shell, the world’s largest LNG supplier, has interests in about a quarter of the LNG ships in operation.

LNG prices have been supported by an increase in Asian imports as Japan shut down nuclear reactors in the wake of the Fukushima disaster last year. Shell increased LNG sales 17 percent to 5.2 million tons in the quarter from last year.

Refining Improvement

There’s an “impressive environment for Shell’s LNG business,” Theepan Jothilingam, an analyst at Nomura Holdings Inc., said before the earnings release. Jothilingam also expected an improvement in refining operations after Shell posted a loss from the business in the previous quarter.

Global refining margins, or the profit from processing crude oil into fuels, rose 28 percent to $11.60 a barrel in the first quarter from the fourth quarter, according to BP data.

Of the 29 analysts that cover Shell, 17 recommend buying the shares, 11 have hold ratings and one advises selling the stock.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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