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Lloyds List: Oil price fuels Shell to $6.3bn profits

Production dips fail to dent profit hype, writes Martyn Wingrove, Lloyds List
Published: Jul 28, 2006

HIGH oil prices lifted Royal Dutch Shell’s second quarter profits by 36% to $6.3bn, compensating for lower production levels due to problems in Nigeria and the Gulf of Mexico.

The Anglo-Dutch oil major reported earnings of $4bn from its exploration and production, $2bn from oil products and $516m from its gas and power division for the three months to June.

Total group production was down 8% year-on year in the second quarter to average 3.25m barrels per day as the London-listed group shut down two Nigerian terminals and the Mars platform in the Gulf of Mexico.

This was partially offset by new volumes coming from Bonga and Erha projects in Nigeria, the West Salym development in Russia and an upgrade to the Champion West platform off Brunei.

Shell hopes output will rise in the second half of this year as it has restarted the Mars platform after nine months of repairs. It is now producing 145,000 barrels of oil and 155m cu ft of gas.

But it has cut its 2006 production forecast to 3.4m barrels per day from previous estimates of 3.6m because of the Nigerian outages.

Investment in liquefied natural gas is paying off as LNG volumes climbed 15% to 2.84m tonnes in the second quarter. This includes additional LNG from Nigerian trains 4 and 5 and from the Qalhat project in Oman. Analysts said Shell’s result was better than expected and were relieved that Shell was sticking with its previous capital expenditure plans.

‘We are delivering our strategy, with ambitous growth plans upstream and selective investment downstream,’ said chief executive Jeroen van der Veer.

‘Our capital programme remains $19bn this year and we will invest $21bn next year. This will help us open up some 20bn barrels of oil equivalent resources by the end of this decade.’

He expects a large portion of Shell’s reserves and production growth will come from unconventionals including gas-to-liquids in Qatar and Canadian oil sands.

‘Our production from unconventionals will go up from 5% this year to 15% in 2014. But this involves large scale projects and investments,’ said Mr van der Veer.

Shell’s capital expenditure in the second quarter was $6.7bn, excluding the firm’s $400m investment in the Sakhalin II project, but including $2.2bn spent on buying oil sands developer BlackRock Ventures.

‘Shell Canada bought BlackRock gaining 48bn boe at a price of $2.6bn. We are looking for new technologies to increase recovery of this 48bn boe in oil sands,’ said Mr van der Veer.

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