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London Evening Standard: Soaring costs send Shell profits diving

Oct 26, 2006
Robert Lea

Royal Dutch Shell today joined its FTSE 100 arch-rival oil major BP in reporting a fall in profits in the third quarter of the year.

Shell admitted today that profits in its key exploration and production division plunged by 25 percent year-on-year, as group earnings in the three months to the end of September fell by 3 percent to $6.95 billion (GBP3.7 billion).

Despite the record oil price of $78 a barrel being reached during the quarter and continuing historically high prices, Shell blamed its poor performance on rising costs, the hangover from the 2005 hurricane season in production in the Gulf of Mexico, and shutdowns in Nigeria where the company’s operations have been hit by insurgents.

Profits were also hurt by high prices triggering production sharing costs, as well as a GBP165 million back-tax demand from the British government.

Excluding the impacts of the Nigerian shutdowns and Gulf of Mexico problems, Shell said production rose by 3 percent.

Chief executive Jeroen van der Veer shrugged off the quarterly performance, which still sees Shell profits up 12 percent on the year to date at $19.3 billion for the first nine months.

“This is a good performance,” he said. “Our earnings have proven resilient in the face of rising industry costs and weakening refining margins.”

But admitting that the company’s operating performance was merely satisfactory, van der Veer added: “Cost pressure remains a significant challenge for our industry.”

Liquefied natural gas, reckoned to be the solution for potential future energy shortages, was a bright spot for Shell, accelerating the group’s gas and power earnings by 19 percent.

Earlier this week, BP reported its first quarterly fall in nearly three years after Alaskan production shutdowns and the hangover of the fatal Texas City refinery explosions and closure of its Thunder Horse platform in the Mexican Gulf.

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