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The Guardian (UK): Shell’s big profits fail to impress City

The Guardian (UK): Shell’s big profits fail to impress City

“The City was less than impressed with yesterday’s figures, which were below expectations. “Shell has a relatively weak competitive position, limited organic growth opportunities, poor reserve replacement record and its project management is poor,” according to Barclays analyst Andrew Fisher.”

Friday July 29, 2005

Mark Milner and David Teather in New York

Royal Dutch Shell yesterday added its name to the ranks of oil companies posting big profits increases only to find its performance under scrutiny.

The company, which has just completed the merger of the Royal Dutch and Shell holding companies, said second-quarter earning had risen 26% to $4.6bn (£2.6bn) on a current cost of supplies basis.

Chief executive Jeroen van der Veer said the company would continue to concentrate on “more upstream and profitable downstream” and that its strong earnings and cash flow would be used for dividends, investment and a share buyback programme that could be resumed after completion of the unification process.

Despite the rise in earnings and the strength of its cash flow, Royal Dutch Shell is still smarting from having to double the estimated cost of developing its Sakhalin-2 project off Russia’s east coast.

Mr van der Veer acknowledged that “we know we have much more to do, including improving project management” and said the company was working hard “to show steady improvement”.

The City was less than impressed with yesterday’s figures, which were below expectations.

“Shell has a relatively weak competitive position, limited organic growth opportunities, poor reserve replacement record and its project management is poor,” according to Barclays analyst Andrew Fisher. Royal Dutch Shell shares ended the day down 31p at £17.59.

The Anglo-Dutch group’s results came alongside those of Exxon Mobil, the world’s largest publicly traded oil firm. The US company posted $7.6bn in profit during its second quarter, a record for the company and 32% higher than the same period a year ago, reflecting growing demand for energy and the rise in oil and natural gas prices.

Exxon’s revenue reached $88.6bn, up from $70.7bn a year ago.

Wall Street’s enthusiasm for the firm’s shares was tempered by a 4.3% drop in oil and gas production during the quarter. Some of the largest energy firms are finding it tough to increase production, a factor driving the current round of consolidation in the industry.

Exxon is investing in exploration of oil and gas fields in Africa and the Middle East as output has begun to fall in older wells in Europe and North America. It has also been using its huge profits to increase share buybacks and dividends for investors.

http://www.guardian.co.uk/business/story/0,3604,1538490,00.html

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