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Bloomberg: Shell Second-Quarter Profit Gains 40 Percent on High Oil Prices

July 27 (Bloomberg) — Royal Dutch Shell Plc, Europe’s No. 2 oil company, said second-quarter quarter profit climbed 40 percent as higher crude prices more than compensated for production losses in Nigeria.

Net income rose to $7.32 billion, or $1.13 a share, from $5.24 billion, or 78 cents, in the year-earlier period, Shell, based in The Hague, said today in a PR Newswire statement. Profit adjusted for inventory changes and one-time items was $6.5 billion, compared with analysts’ estimates of $6.2 billion.

Chief Executive Officer Jeroen van der Veer is seeking to boost Shell’s access to reserves and make up for lost output in Nigeria by tackling more complex projects in Russia, the Middle East and Canada. Shortages of labor, raw materials and equipment have led to overruns at projects such as Sakhalin II, where costs last year doubled to $20 billion.

“Although we expect a very good second quarter, the sharp increase in costs arising from the company’s numerous projects could lead Shell to increase capital expenditure post-2007, or downgrade its production profile,” Stephane Foucaud, an analyst at SG Securities in London, wrote in a July 18 report. “Year-on- year production will be down because of Nigeria,” he said yesterday.

Shell’s London-traded `A’ shares yesterday rose 1.5 percent to 1,872 pence, valuing the company at 124.5 billion pounds ($230 billion). The stock has gained 5.7 percent this year. Oil prices in New York surged 33 percent from a year earlier to average $70.72 a barrel in the second quarter.

Lost Production

Of the 25 analysts that have rated Shell stock in the past three months, 15 recommend investors “buy” the shares. Five say “hold” and five “sell,” according to data compiled by Bloomberg.

Shell’s Nigerian venture is losing some 653,000 barrels of oil a day amid violence and vandalism in the Niger Delta, a spokeswoman said earlier this week. The lost production is hampering the company’s ability to meet production targets. Shell owns 30 percent of the venture in the country, Africa’s biggest oil producer.

On Feb. 2, Shell said its global average oil and gas output this year would be “in the lower half of the range of 3.5 million to 3.8 million barrels a day.”

The company is investing more in its own business than BP Plc as it tries to boost output and reserves that have lagged behind its rival after Shell was forced to cut its reserve estimates in 2004. The restatement led to the ouster of the Chairman, and resulted in investor lawsuits and fines.

Record Profit

Shell’s proved reserves at the end of 2005 were about 11.5 billion barrels of oil equivalent, according to its latest annual report. BP had 17.9 billion barrels, its annual report showed. Exxon Mobil Corp.’s reserves are about 21.6 billion barrels.

BP, Europe’s largest oil company and Shell’s closest competitor, said two days ago that its second-quarter net income rose 30 percent from a year earlier, to a record $7.27 billion.

Exxon Mobil, the world’s largest publicly traded company, and Spain’s Repsol YPF SA, Europe’s fifth-biggest oil company, also report earnings today.

Irving, Texas-based Exxon Mobil may say that second-quarter profit climbed 30 percent to $9.92 billion, according to the average estimate from 21 analysts surveyed by Thomson Financial.

ConocoPhillips, the third-largest U.S. oil company, yesterday posted a 65 percent gain in second-quarter profit, exceeding analysts’ expectations, as crude and gasoline prices climbed and an acquisition lifted production. Net income rose to a record $5.19 billion from $3.14 billion, the Houston-based company said.

Share Performance

Profits at the six biggest publicly traded oil companies by sales probably jumped 23 percent to $36 billion in the quarter, based on JPMorgan Chase & Co. estimates. That’s more than Venezuela’s gross domestic product in the same period.

Higher capital spending means Shell has less free cash to return to shareholders through stock buybacks than BP does. Still, Shell’s stock has risen more than BP’s 2.5 percent gain this year. Shares of Shell have underperformed Exxon Mobil stock.

SG Securities, a unit of Societe Generale SA, France’s third- largest bank, yesterday cut its recommendation on BP to “hold” from “buy,” citing delays at a Gulf of Mexico platform, and BP’s forecast that its capital expenditure may reach $16 billion this year, $1 billion more than earlier planned.

To contact the reporters on this story:
Stephen Voss in London at  [email protected];
Mathew Carr in London at  [email protected]

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