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THE TIMES: Shell profits surge 28% despite production fall

THE TIMES (UK): Shell profits surge 28% despite production fall

By Carl Mortished, International Business Editor

April 29, 2005   

SHELL pleased its investors yesterday with unexpectedly strong quarterly earnings, helped by high oil prices and refining margins.

Profits for the first three months of the year on a current cost basis were up 28 per cent to a record $5.55 billion (£2.9 billion), roughly equal to its rival BP, which reported first-quarter earnings on Tuesday.

The Anglo-Dutch company’s report was free of unwelcome surprises about oil and gas reserves but production continues to decline at the world’s third-largest oil company.

Hydrocarbon production fell in the first quarter by 5 per cent, reflecting asset sales as well as the declining output of Shell’s mature oilfields.

Jeroen van der Veer, chief executive, said that production was at the top end of expectations. He described the first quarter as an “excellent start to the year” and said that Shell would continue to pay surplus cash to investors, having invested $500 million in share buybacks in the the first quarter.

Shell is expecting to distribute more than $10 billion in cash dividends to shareholders this year. The company also plans to buy back between $3 billion and $5 billion of stock.

Mr Van der Veer said that results from wells drilled in the first quarter were encouraging but he did not give any indication of quantities of oil and gas discovered before evaluation.

However, he repeated his promise to replace Shell’s production with new reserves at the rate of 100 per cent on average over the five years to 2008.

Shell is under pressure to boost its exploration success rate after last year’s removal of more than four billion barrels of oil and gas from its proven reserves. The company has acquired new exploration acreage in Alaska, Canada, the Gulf of Mexico, Algeria and Egypt.

Shell’s liquefied natural gas business shipping 15 per cent more gas in the first quarter. Downstream, Shell is benefiting from strong refining margins and its oil products business boosted its earnings by 59 per cent to $1.88 billion.

OIL PRICES PUT UNDER PRESSURE

Oil prices continued to tumble yesterday as traders took fright at evidence of a large build-up of crude oil stocks in America and mounting evidence of a slowdown in the pace of US economic growth.

A report from the US Commerce Department that first-quarter economic growth was at its slowest for two years sent US light crude for June delivery below $50 per barrel before recovering, while Brent fell 79 cents to $51.50.

The oil price came under pressure on Wednesday, dropping 5 per cent after the US energy Information Administration reported a surge in crude oil inventories. Stocks rose by 5.5 million barels to 324 million barrels, their highest level for almost three years.

Shipping analysts yesterday reported a sharp rise in the amount of oil being shipped to market, up 170,000 barrels per day to 24.4 million bpd, after recent rises in Opec output.

In a meeting with Crown Prince Abdullah this week, President Bush called on Saudi Arabia to increase its spare capacity.

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