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The Guardian: Shell beats forecasts with 28% rise in profits

The Guardian: Shell beats forecasts with 28% rise in profits

Terry Macalister

Friday April 29, 2005

Shell plans to hand over $15bn (£7.9bn) to investors through dividends and share buybacks this year after beating City forecasts with a 28% rise in first-quarter profits.

The strong results came on the back of soaring oil and gas prices but masked an 8% fall in the Anglo-Dutch group’s hydrocarbon production.

Jeroen van der Veer, the chief executive, described the $5.6bn cost of supply earnings as an “excellent start to the year”.

The profits – in line with BP’s – compared with analysts’ estimates of $4.7bn and came despite losses incurred by its petrol sales in Britain.

Shell shrugged off the fall in physical output to 3.8m barrels of oil equivalents per day, saying this was in line with expectations and partly due to the expiry of a gas contract in Oman. Mr Van der Veer said he was still “reasonably confident” of reaching a 100% reserve replacement ratio over five years, although he acknowledged the uncertainties.

Under the most extreme measurement criteria – including the impact of divestments and year-end pricing – the 2004 reserve replacement figure for Shell was just 19%.

The cash handouts to share holders will come via $10bn of dividends, plus share buybacks of $3bn to $5bn. A first-quarter dividend of 4.55p a share cost Shell nearly $2bn.

The company generated $8.1bn of cash from operations in the first quarter, bolstered not only by the exploration division but by a strong downstream performance of the oil products and chemicals unit.

Bruce Evers, of Investec Securities, said Shell had produced “staggeringly good numbers” with strong evidence of even better times to come. He shrugged off the falling output, noting that, without divestments, production figures were only 2% down year-on-year.

The company admitted that its huge production business in Nigeria was always vulnerable to economic shocks. Recent warnings of debt-repayment failures by the West African nation were the kind of thing Shell had to live with. “I think there are always concerns,” said Mr Van der Veer.

Shell’s strong results were echoed in New York where ExxonMobil reported a 44% rise in quarterly profits. Net income rose to $7.86bn – from $5.44bn a year before – but without a one-off gain from asset sales, the figures were slightly below forecasts.

http://www.guardian.co.uk/business/story/0,,1472772,00.html

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