AFX News: Shell Q2 profit up; Prepares 500 mln usd settlement for US lawsuit UPDATE

EXTRACT: Shell also announced it is “determined and prepared” to resolve the US litigation “for, among other terms, a payment by Shell of 500 mln usd.” It has made provisions for the payment, although it pointed out that no agreement has been reached with the plaintiffs.

The accounting error in the reserves led to the departure of key executives at Shell, including chairman Philip Watts, and a far-reaching revamp that led to the historic union of the UK and Dutch parent companies of the group.

The settlement of the lawsuit will allow Shell to finally put an end on the issue so it can focus on rebuilding reserves and growing the business, as well as regaining investor trust.

THE ARTICLE

27/7/2006

LONDON (AFX) – Royal Dutch Shell PLC delivered a 26 pct rise in second-quarter profits and announced that it is prepared to pay 500 mln usd to settle a US class action lawsuit arising from the group”s shock oil reserves downgrade in 2004.

For the quarter to June, the group”s net profit, on an adjusted current cost of supply basis and after adding back one-time charges, rose to 6.546 bln usd from 5.194 bln last time, ahead of the consensus forecast of 6.125 bln usd.

Charges for the quarter totaled 232 mln usd as against 547 mln a year ago, mainly relating to tax changes in Canada and a revamp in the group”s retirement scheme in France.

Stripping out the charges, CCS profit rose 36 pct to 6.314 bln usd from 4.647 bln last time.

Shell raised its quarterly dividend to 0.25 eur from 0.23 eur previously.

Shell also announced it is “determined and prepared” to resolve the US litigation “for, among other terms, a payment by Shell of 500 mln usd.” It has made provisions for the payment, although it pointed out that no agreement has been reached with the plaintiffs.

The accounting error in the reserves led to the departure of key executives at Shell, including chairman Philip Watts, and a far-reaching revamp that led to the historic union of the UK and Dutch parent companies of the group.

The settlement of the lawsuit will allow Shell to finally put an end on the issue so it can focus on rebuilding reserves and growing the business, as well as regaining investor trust.

Turning to the results, Jeroen van der Veer, the chief executive, was pleased with the figures, which he attributed to “good operational performance and not simply high energy prices”.

“We plan to open up some 20 bln barrels of oil equivalent resources by the end of this decade. We are making steady progress on our projects, and building our portfolio for the future,” he said.

Production for the quarter fell to 3.253 mln boepd from 3.526 mln, reflecting the disruptions caused by the civil unrest in Nigeria and hurricanes in the US.

For the full year, Shell expects output to reach 3.4 mln boepd, below its reduced guidance of 3.5-3.6 mln boepd, to reflect lower output in Nigeria for the rest of 2006.

“At present Shell is in the early stages of the return to operations process (in Nigeria),” it said, failing to give a firm date when Shell”s facilities there will return to full production.

It reaffirmed the capital spending guidance of 19 bln usd for 2006 and 21 bln usd for 2007, excluding its share in the Sakhalin project in Russia, despite cost pressures brought about by soaring oil prices.

Shell failed to give an update on the Athabasca oil sands project in Canada, which is facing cost overruns that could once again increase the budget for the 7.3 bln cad complex.

“We continue to study the opportunity to expand the production capacity at the Athabasca Oil Sands Project”s mining facilities, and expect the operator, Shell Canada, to make their investment decision shortly,” it said.

Shell has made a final investment decision for the Pearl gas-to-liquid project in Qatar, with the first train expected to start production at the end of the decade.
The cost of the Pearl GTL project, the largest of its kind in the world, is expected to be around 4-6 usd per boe.

The group”s exploration and production business saw earnings rise to almost 4 bln usd from 2.74 bln previously, with high oil prices making up for the weak volumes.

Earnings at the oil products unit grew to 2.065 bln usd from 2.028 bln, at the gas and power division to 516 mln usd from 11 mln, and at chemicals to 348 mln usd from 280 mln.

Shell will book a one-time charge of 300 mln usd in the third quarter relating to the increase in UK taxes.

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