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Shell’s first results as a single group disappoint

Financial Times: Shell’s first results as a single group disappoint

“Shell, which this month united its Dutch and UK holding companies, is struggling to keep up. It lags behind competitors in production growth, faces lawsuits in the US over false reserves statements and announced a $10bn cost overrun at Sakhalin-2, the flagship Russian project. There was further bad news yesterday from Jeroen van der Veer, Shell chief executive, who said that Bonga, one of Shell’s most important projects in Nigeria, would also be delayed.”

Friday 29 July 2005

By Carola Hoyos in London

Published: July 29 2005

* Oil company’s performance fails to match BP’s

Royal Dutch Shell, the world’s third biggest listed energy group, disappointed investors yesterday as its first earnings report as a unified company revealed weaker-than-expected results.

Second-quarter “current cost of supply” net profit, a closely watched measure which excludes gains from rising fuel stock values and one-off charges, was $5.17bn (€4.29bn), compared with expectations of $5.44bn.

Jonathan Copus, analyst at Investec Securities in London, said: “This is a disappointing set of numbers and we will be reviewing our forecasts.”

This week, BP, Shell’s European rival and the world’s second biggest oil company by market capitalisation, reported a 29 per cent rise in second-quarter net profits to $4.98bn, on the back of the high oil prices. The comparable number at Shell was $4.63bn, up 26 per cent.

ExxonMobil, the world’s largest oil company, recorded second-quarter net income of $7.6bn, up 32 per cent from the same quarter last year, but also below analysts’ forecasts.

Shell, which this month united its Dutch and UK holding companies, is struggling to keep up.

It lags behind competitors in production growth, faces lawsuits in the US over false reserves statements and announced a $10bn cost overrun at Sakhalin-2, the flagship Russian project.

There was further bad news yesterday from Jeroen van der Veer, Shell chief executive, who said that Bonga, one of Shell’s most important projects in Nigeria, would also be delayed.

“We know we have very much to do, especially in improving our exploration and production project delivery,” Mr van der Veer said.

Shell’s share buybacks will total $3bn-$5bn this year, while in production it expects to stem declines in older fields rather than grow total volumes.

In contrast, BP increased its share buybacks to $6bn in the second half of the year, while maintaining its pledge to lift oil and natural gas production by 5 per cent.

The company said it would increase the amount it spent on exploration in 2005 and 2006 from $1.5bn a year to $1.8bn.

It left unchanged its estimate of $15bn of total capital expenditure for 2005. But analysts said bad news could be on the way, noting that the overall investment programme for 2006 would be subject to review this year.

Basic CCS earnings a share were $0.69, an increase of 27 per cent. The second quarter dividend is set at €0.23 per share. The company’s London-traded B-shares fell 1.7 per cent to £17.59 pence. In Amsterdam its A-shares dropped 1.2 per cent to €24.75

Additional reporting by Malini Guha.

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