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Shell’s performance beats expectations

Financial Times: Shell’s performance beats expectations

“Shell has been reviewing its leading projects since the cost of its Sakhalin 2 project in Russia doubled to $20bn earlier this year. The enthusiasm of some analysts was tempered by their expectation that its capital expenditure budget would have to rise when it is announced in December.”

Friday 28 October 2005

By Thomas Catan and Sharlene Goff

Royal Dutch Shell made the largest quarterly profit in its 98-year history this summer, despite a severe beating from the storms in the Gulf of Mexico.

The world’s third-largest oil company by market value saw its third quarter profit soar 68 per cent on the back of high oil prices and a pipeline sale in the Netherlands. The results far exceeded market expectations, sending Shell’s “B” shares up 14p to £17.91.

The company’s third-quarter “current cost of supply” (CCS) net profit – a closely watched measure that excludes gains from rising fuel stock values and one-off charges – was $5.8bn (£3.3bn) against expectations of about $5bn.

This compared with $4.41bn in the same quarter theprevious year and $5.17bn in the second quarter.

Including the Dutch pipeline sale, current cost of supply earnings rose to $7.37bn in the third quarter. CCS earnings per share were up 69 per cent at $1.10.

“We had a very good quarter in all the businesses,” said Peter Voser, Shell’s chief financial officer.

Profit at Shell’s exploration and production unit soared by 112 per cent as the company was able to cash in on high oil and gas prices. However, Shell’s production volumes fell by 11 per cent for a number of reasons, including the loss of around 160,000 barrels a day due to hurricanes Katrina and Rita.

Shell’s average production for this year is now expected to total 3.5m barrels of oil equivalent a day, at the lower end of its previous guidance, and to remain at that level for 2006.

“We have absorbed significant impact of the hurricanes and we are still within the [production] target,” Mr Voser said.

Shell’s is still recovering from the record storm season. It is producing 200,000 barrels a day out of its normal 450,000 b/d production in the Gulf of Mexico. The company said it expected another 150,000 b/d to come on stream by the end of the year, 80,000 b/d more than previously expected.

The company confirmed its $15bn capital expenditure budget for 2005 but has yet to announce a figure for 2006. Shell has been reviewing its leading projects since the cost of its Sakhalin 2 project in Russia doubled to $20bn earlier this year. The enthusiasm of some analysts was tempered by their expectation that its capital expenditure budget would have to rise when it is announced in December.

“We believe that the remaining risks are further capex hikes and acquisitions,” said Credit Suisse First Boston.

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