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FINANCIAL TIMES: Shell investors in line for extra windfall

FINANCIAL TIMES: Shell investors in line for extra windfall

By James Boxell

Published: April 29 2005

Royal Dutch/Shell could return more money to shareholders than expected this year if oil prices remain more than $50 a barrel.

The Anglo-Dutch energy company yesterday followed the lead of BP, its bigger rival, by reporting record profit of $5.5bn (£2.88bn) for the first three months of the year, despite a 5 per cent year-on-year decline in oil and gas production.

Shell has lagged far behind BP and ExxonMobil of the US in the scale of share buy-backs as it recovers from last year’s reserves overbooking scandal.

It reiterated that it would return $3bn to $5bn to investors but Peter Voser, finance director, said: “If oil prices remain the same, one would expect to return more.”

However, he warned that the proposed merger of Shell’s Dutch and British holding companies, which will end its 100-year-old dual-board structure, could limit the cash returned.

Shell only returned $500m in the first quarter compared with $2bn at BP and Mr Voser said the bulk of its repurchases would need to be squeezed in later in the year if the merger was approved at June’s annual meeting.

The company is planning $10bn of dividend payments.

Daily production fell to 3.85m barrels of oil equivalent a day compared with 4.06m a year ago. BP produces 4.1m barrels a day.

Shell hopes new fields in Russia, Kazakhstan and Nigeria will boost production to 3.8m to 4m barrels a day by the end of the decade but this would leave it further behind BP and Exxon.

Jeroen van der Veer, chief executive, was “reasonably confident” that Shell would hit targets for replacing all the oil and gas it extracts on average in the next five years. It replaced just one in five of the barrels extracted last year and some analysts said it would need an acquisition to boost reserves.

Shell is experiencing difficulties in Oman, one of its key producing countries, which may give control of one of its bigger fields to Occidental of the US.

Profit from its downstream division rose by more than 50 per cent as strong refining margins in the US and Asia offset declines in retailing operations – especially in the US, where it is difficult to recover much of the cost of rising crude prices at the petrol pump.

Profit for the struggling exploration and production business was $2.95bn, just 9 per cent higher than the previous year.

This was despite a 44 per cent increase in the price it received for its oil and big rises in the amount received for its gas output.

The division’s profit would have risen 22 per cent without a $172m charge related to gas prices in the UK.

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