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MartketWatch: Royal Dutch Shell profit climbs 40%: set aside $500 million to settle a class-action lawsuit

Profit tops forecasts; company holds capital spending outlook

By Steve Goldstein, MarketWatch
Last Update: 3:32 AM ET Jul 27, 2006

LONDON (MarketWatch) – Royal Dutch Shell on Thursday said its second-quarter profit rose 40% on surging oil and gas prices despite not producing as much as oil as last year.

Royal Dutch said its net income rose to $7.32 billion, with revenue up 1% to 83.12 billion. It lifted its dividend by 9% to 0.25 euros (32 cents) a share.

On a cost of current supplies measure, a more widely-tracked figure that strips out the change of energy prices on inventories, profit rose 36% to $6.31 billion.

Analysts were looking for a profit of $6.13 billion.

The only European oil company bigger than Shell, BP, earlier this week reported an adjusted profit of $6.12 billion. Read story on BP’s earnings.

Shell shares improved 2.1% in early London trading.

Shell said its profit was driven by a 33% improvement in oil and gas prices, which offset an 8% decline in production to 3.25 million barrels of oil equivalent a day.

The production decline came as violence in Nigeria limited production there, and as the company recovered from last year’s hurricanes in the Gulf of Mexico.

Shell said excluding those factors, and the increased share of production taken by governments due to better prices, production was flat.

It said it can’t predict when it will re-start Nigerian production or when it will ramp up to full capacity.

Shell also noted that it’s set aside $500 million to settle a class-action lawsuit related to its proved reserve reduction in 2004, when it slashed reserves by a third.

Shell provided some comfort to investors by noting it’s holding onto its guidance for 2006 capital spending of around $19 billion and 2007 capital spending of $21 billion, excluding costs of getting the minority-held Sakhalin venture in Russia started.

The industry broadly has been battling cost inflation.

It said it’s still studying whether to create one of the largest U.S. refineries in Port Arthur and whether to expand its Athabasca oil sands project in Canada, and has decided to go ahead on expanding petrochemicals activity in Singapore and the Pearl GTL Qatar gas-to-liquids project. 

Steve Goldstein is MarketWatch’s London bureau chief.

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