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BLOOMBERG: Shell 2nd-Qtr Profit Misses Estimates as Output Falls (Update4)

BLOOMBERG: Shell 2nd-Qtr Profit Misses Estimates as Output Falls (Update4)

Thursday 28 July 2005

July 28 (Bloomberg) — Royal Dutch Shell Plc, Europe’s second- biggest oil company, posted lower-than-expected profit for the second quarter as production fell. The report was the first since Shell’s British and Dutch parent companies combined.

Profit excluding gains or losses in the value of its oil inventory and a one-time charge rose 22 percent to $5.17 billion, which missed estimates of $5.4 billion, according to a Bloomberg News survey of eight analysts. Revenue, which benefited from higher oil prices, advanced 33 percent to $82.6 billion, Shell said today in a statement.

Shell Chief Executive Officer Jeroen van der Veer’s goal this year is to stem production declines as competitors forge ahead with increases in output. He said today that an offshore project at Bonga, Nigeria, was further delayed after saying July 14 that costs to develop the Sakhalin venture in Russia, the world’s largest oil and gas project, may double to $20 billion.

“The company as a whole is lagging” the industry, said Gert- Jan Geels, a managing partner at money manager Eureffect BV in Amsterdam and who didn’t say how much money he manages. He owns Shell stock, though “I’m not looking for an overweight position on this one,” he said.

Shell’s forecast for spending this year on equipment, known as capital expenditure, will stay at $15 billion, the company said in the statement. Equipment spending after this year is “subject to review” by the board, Shell, based in The Hague, said.

Capital Spending

It may rise to $16 billion or $17 billion, Angus McPhail, an analyst at ING Financial Markets in Edinburgh, said in a London interview. McPhail rates Shell stock “hold.” “Shell has been somewhat inconsistent with project delivery.”

The company’s London-traded `B’ shares were down 1.2 percent at 1,768 pence at 12:32 p.m. local time, the ninth day of declines in the past 10. These shares are up 14 percent this year, compared with a 24 percent gain for BP Plc stock.

Shell shares last year lagged behind its competitors after the company said in January 2004 that it had misled investors on the size of its reserves. Phil Watts was ousted in March 2004 as chairman of the committee of managing directors, the top executive role, and was replaced by van der Veer, 57, a managing director who ran Shell’s chemicals business.

Oil companies are benefiting from a 39 percent surge in oil prices from the year-earlier quarter. They are returning billions of dollars to shareholders as their growth in oil and gas production slows in mature oil basins such as the North Sea. Shell today repeated it plans to recommence a $3 billion-to-$5 billion stock buyback program next month.

Stock Buyback

“People had been moving money to Shell and some money might be coming out because the shares won’t be supported until the buyback starts” on Aug. 9, said Dirk Hoozemans, a fund manager at Robeco Group in Rotterdam, which manages about $4 billion in energy stocks, including Shell.

BP two days ago reported a 29 percent surge in second-quarter profit, to $4.98 billion, which included a one-time charge related to a refinery explosion. The company plans to repurchase more than $6 billion in stock during the second half of the year. Repsol YPF SA, Europe’s fifth-largest oil company, today said second-quarter profit rose 15 percent to 805 million euros ($971 million). Exxon Mobil Corp. also reports earnings today.

Shell should consider boosting the size of its buyback, ING’s McPhail said. Having $11.5 billion cash on the balance sheet is “particularly suboptimal,” he said.

Production Falls

Shell’s oil and gas production, including oil sands, averaged 3.53 million barrels of oil equivalent a day in the second quarter, a 1 percent decline from 3.58 million barrels a day a year earlier.

Profit including the $545 million charge and excluding oil inventories increased 26 percent to $4.63 billion, Shell said today. Including inventory changes, Shell reported net income of $5.24 billion. Earnings per share in the quarter, excluding gains or losses in oil inventories, rose 27 percent to 69 cents, Shell said. The second-quarter dividend will be 23 euro cents a share.

Shell kept its output goals unchanged, at between 3.5 million and 3.8 million barrels a day for 2005 and 2006, and from 3.8 million to 4 million barrels a day for 2009. BP plans to boost production by 5 percent a year, on average, until the end of the decade.

New York crude oil futures averaged $53.22 a barrel in the second quarter, up from an average price of $38.31 in the year- earlier period.

Sakhalin Delay

Royal Dutch Shell Plc shares began trading on July 20 after its Dutch and U.K. parent companies merged into one. Their combination created the second-largest U.K.-incorporated company, behind BP, and bolstered Shell’s place in U.K. stock indexes. The merger was announced on Oct. 28 and approved by shareholder votes on June 28.

Shell said this month that its Sakhalin oil and gas venture in Russia’s Far East is behind schedule and may cost twice original estimates. A week earlier, the company had agreed to swap part of its stake in Sakhalin with state-controlled OAO Gazprom in return for part of an undeveloped gas field in Siberia.

Deliveries of liquefied natural gas will start in the summer of 2008, about eight months behind schedule.

Engineering work at Sakhalin “could have been better,” van der Veer said during a conference call today. Management of the project still needs to improve, he said.

Shell today said its Bonga offshore oil project will start production in the fourth quarter. The project has been repeatedly delayed, with the company earlier this month saying it expected output to begin in the third quarter.

Shell units made discoveries at two deep-water fields off Nigeria, the company said today, without being more specific.

Earnings at the company’s gas and power unit during the quarter plunged 97 percent to $11 million from $334 million a year earlier, Shell said.

“I was looking for a better result” from gas and power, ING’s McPhail said.

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