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Reuters: Shell profit beats forecasts: $500 million charge for litigation related to Shell’s overstatement of its reserves

EXTRACT: Excluding non-operational gains and losses, including a $500 million charge for litigation related to Shell’s overstatement of its reserves, the result was $6.546 billion.

THE ARTICLE

Thu Jul 27, 2006 8:35 AM BST

By Tom Bergin

LONDON (Reuters) – Royal Dutch Shell beat forecasts on Thursday with a 36 percent rise in second-quarter profits, boosting its shares, as high oil prices more than compensated for disappointing production news.

Investors were also cheered by Shell’s reaffirmation that it was sticking to its 2006 and 2007 spending plans, despite rampant sector cost inflation.

Shell shares rose 2.24 percent to trade at 1914 pence in London at 8:30 a.m., ahead of a 1.1 percent rise in the DJ Stoxx European oil and gas sector index.

“It is a very good performance for Shell … even though production was lower. High oil prices obviously work well for the company,” Jaap Barendregt, at FBS Bankiers said.

Lower than expected production of oil and gas and a reduction in the Anglo-Dutch company’s 2006 output target took some shine off the results.

The world’s third largest fully publicly traded oil company by market value said in a statement that its second-quarter current cost of supply (CCS) net profit, which strips out changes in inventory values, rose 36 percent rise to $6.3 billion (3.4 billion pounds).

Excluding non-operational gains and losses, including a $500 million charge for litigation related to Shell’s overstatement of its reserves, the result was $6.546 billion.

This was a record underlying profit and beat an average forecast of $6.149 billion from a Reuters poll of 12 analysts.

Analysts consider the CCS figure, excluding one-offs, is the best measure of Shell’s underlying performance.

PRODUCTION DOWN

Shell’s production of oil and gas disappointed slightly, falling almost 8 percent to average 3.253 million barrels of oil equivalent per day (boepd) in the second quarter, compared with an average forecast of 3.315 million boepd.

Shell cut its 2006 output target, saying its production would be around 3.4 million boepd rather than the 3.5-3.6 million boepd earlier envisaged if outages related to civil strife in Nigeria continue.

However, Shell added the caveat that the new target assumed oil prices at $50 – well below current levels.

If prices are above $50, Shell will receive even less oil under its production contracts with some resource holding governments, and so output could be under 3.4 million boepd.

Shareholders will be relieved that Shell has stuck to its 2006 and 2007 capital spending plans, after rival BP was forced to hike its spending plans on Tuesday.
 
© Reuters 2006. All rights reserved.
 

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