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BLOOMBERG: Shell's Australian Refining Profit Surges on Margins (Update1)

BLOOMBERG: Shell's Australian Refining Profit Surges on Margins (Update1)


May 22 (Bloomberg) — Royal Dutch Shell Plc's Australian unit had refining and marketing profit jump more than sixfold last year because of enhanced plant reliability and gains in earnings from turning each barrel of crude oil into fuel.


Profit before interest and tax for the unit rose to A$300 million ($226 million) in the year ended Dec. 31, from A$43.5 million a year earlier, Shell Australia said today in a statement. Shell reduced the amount of imports needed to meet customer demand and its discount gasoline retail venture with Coles Myer Ltd. benefited from “strong customer support,'' said Russell Caplan, Shell Australia's chairman.


Australia's four oil refiners spent more than A$1 billion to upgrade plants to meet cleaner 2006 standards for diesel and gasoline, the Australian Institute of Petroleum estimates. Shell's capital investments almost trebled last year, to A$734 million, after it spent more on refinery upgrades and exploration.


“Downstream showed a very welcome improvement,'' Caplan, who took over from Tim Warren as chairman in February, told reporters at a briefing in Melbourne. “That's based on a good marketing performance, which continues, and a strong turnaround in refining performance, which helped us capture the stronger refiners' margin.''


Refinery Decisions


Shell Australia's refining and marketing division made an additional A$215 million income from the sale of its trademarks to Shell's Shell Brands International unit, it said. Sales rose 20 percent to A$15.72 billion. Total full-year profit before interest and tax for Shell Australia climbed 69 percent to A$1.27 billion on sales that rose 12 percent to A$17.65 billion.


Shell invested A$340 million in its two refineries in Sydney and Melbourne to meet stricter standards for gasoline and diesel that came into effect Jan. 1. It has yet to commit to the investments that would be required to enable the plants to meet further tightening of standards in 2008 and 2009, Caplan said.


The decision on that investment, which will be lower than the last round of refiner investment, is “certainly not without doubt,'' Caplan said. “We end up with looking at a make or buy decision each time and try and work out what is most valuable economically.''


Shell and Coles Myer are seeking to expand their retailing venture amid the surge in pump prices that has buoyed demand for discounted fuel, Caplan said. The system involves a shopper docket system that gives customers 4 cents a liter off fuel from selected Shell service stations when they buy more than A$30 of groceries from Coles Myer.


Profiteering Claims


A surge in Australian retail gasoline prices to a then- record in September prompted accusations from groups including the Australian Automobile Association of profiteering by oil companies.


“The consumer is valuing the discount that the docket provides off petrol, nowhere is it more obvious than in a time of higher prices,'' he said. “High prices are obviously a problem and an issue for our customers.''


Full-year profit before interest and tax at Shell's oil and gas exploration and production unit in Australia jumped 37 percent to A$968 million, mostly because of a 28 percent increase in liquefied natural gas sales volumes and higher prices. Sales rose 23 percent to A$1.93 billion.


Oil output dropped 15 percent after Shell sold its stake in the Laminaria and Corallina fields in the Timor Sea and as oil flows declined at the Woodside Petroleum Ltd.-operated North West Shelf venture.


Woodside Stake


“Record gas production and sales allowed us to capitalize on strong prices,'' Caplan said. “We regard 2005 as a good year in both of our major businesses, with upstream clearly the powerhouse performer for us and downstream strongly in recovery.''


Shell has no plans to either increase or sell its 34 percent stake in Perth-based Woodside, Caplan said. Shell in 2001 made a $3.2 billion bid for control of Woodside and was blocked by the government. Shares in Woodside have jumped 78 percent in the past 12 months.


Shell is “very happy with our position in Woodside, and why wouldn't you be with the Woodside share prices as it is,'' Caplan said.


Shell may bid for BP Plc's 12.7 percent stake in an exploration area that covers part of a gas field that will supply the Gorgon gas project, in which Shell has a stake, said Chris Gunner, chief operating officer of Shell Development Australia Pty.


“We all have preemptive rights so we'd have a look at it,'' Gunner said at the briefing. “We're interested generally speaking in increasing our gas position.''


To contact the reporter on this story:

Angela Macdonald-Smith through the Sydney newsroom at


[email protected].


Last Updated: May 22, 2006 01:57 EDT 

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