The Guardian: Shell sets aside $500m to deal with US lawsuits

· Soaring oil prices drive 36% rise in profits
· ExxonMobil’s earnings close to record at $10.3bn

Terry Macalister
Friday July 28, 2006

Shell has set aside $500m to cover the cost of shareholder lawsuits in America over alleged misconduct in overstating reserves, it emerged yesterday as the company reported a 36% rise in second quarter profits to $6.3bn (£3.4bn). Soaring crude prices helped drive earnings which were slightly higher than BP’s but well short of ExxonMobil’s $10.36bn figure also reported yesterday – the second largest in history.

Chief executive, Jeroen van der Veer, denied Shell was profiteering on North Sea gas or petrol pump prices but predicted further volatility in global crude prices as a result of Middle East and other tensions. Asked at a results presentation whether prices would remain at the $73 per barrel level seen in recent days, he said: “We expect quite some volatility in the oil price because those [geopolitical] factors are hard to assess.”

The Shell profits came on a day of outcry about rising domestic gas costs, and the Exxon result was expected to trigger further political rows in the US where motorists are up in arms about soaring gasoline prices. The Exxon profits – 36% higher than last time – were just short of the record of $10.71bn in the fourth quarter of last year. Revenues rose to $99bn from $88bn 12 months earlier and come at a time when drivers in the US are paying $3 per gallon, very high by local standards.

The figures from Exxon, under the new leadership of Rex Tillerson, beat Wall Street expectations and sent its shares to their highest ever level and helped lift the whole market. The second half of the year is expected to be even better than the first for the world’s biggest publicly-quoted oil group.

Shell declined to comment on speculation that a shelved takeover plan developed by BP chief Lord Browne went as far as talks with the Anglo-Dutch group.

It said it had set aside a $500m provision in its accounts. No settlement has been reached, but the company admitted it hoped to break the deadlock with shareholder class actions currently before a US district court. They stem from the reserves fiasco of 2004 which led to the exit of chief executive Sir Phil Watts and his exploration director and to fines of £84m from US and British regulators.

“Shell has determined it would be prepared to resolve that litigation for, among other terms, a payment by Shell of $500m,” it said in a formal statement. “Its a management judgment that we expect we can settle the current litigation with that amount,” Mr Van der Veer said.

Shell can easily afford this given its exploration and production business alone reported earnings of $3.9bn – up 46% on the same period last year despite an 8% slump in oil production. Shell was hit by problems in Nigeria with output down by 177,000 barrels of oil equivalents per day on a year ago as a result of civil disturbances and attacks in the Delta region.

This week Shell suffered a further pipeline rupture which some put down to an explosion. Mr Van der Veer insisted there would be no pulling out of the area. “We are not afraid to invest in Nigeria.”

Fadel Gheit, oil analyst with the Oppenheimer & Co brokerage in New York, said the Shell financial figures were “very impressive” and agreed with Shell that underlying oil output volumes were essentially strong. The group is targeting unconventional sources of oil for some of its growth including oil sands in Canada and gas-to-liquids (GTL) schemes in the Middle East.

It gave the go-ahead on Wednesday to a huge GTL project in Qatar, called Pearl, but declined to comment on speculation that the costs have soared since it was conceived. Shell said it was no longer giving out detailed figures on individual schemes drawing inevitable speculation that this is aimed at reducing the kind of embarrassment it faced over mounting cost overruns at Sakhalin in Russia.

The Shell chief would not commit himself to the continued use as a consultant of Bill Campbell who had spoken out to this newspaper about serious lapses in safety standards across Shell’s North Sea platforms. “We will have to see how it unfolds,” Mr Van der Veer said.

He was equally unwilling to comment on the BP takeover moves saying they were something only BP could comment on. “You can ask the question but I don’t want to go there at all,” he said adding: “As long as I was in the chair [as chairman], every summer we have one speculation.”

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