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The Times: Shell takes BP’s crown as market value hits £120bn

October 27, 2006
By Carl Mortished, International Business Editor
 
ROYAL Dutch Shell surged past BP to take the hotly contested title of Europe’s largest energy company as the Dutch firm announced a strong set of profits and rebuffed rumours that the company’s controversial Sakhalin-2 gas project was suffering from new budgeting problems.

Shell stock gained almost 4 per cent yesterday as its surprised the market with a 22 per cent gain in underlying profit to $6.9 billion (£3.65 million) in the third quarter, The profit boost, which confounded most City analysts, pushed Shell’s stock market value in London to £120 billion, slightly ahead of BP at £119 billion. 
 
Meanwhile, in Houston, Texas, ExxonMobil, the world’s largest oil company, surprised investors with a 7 per cent surge in oil and gas output to 4 million barrels per day in the third quarter, well ahead of an anticipated 5 per cent uplift.

Exxon’s strong volume gain helped the US oil juggernaut’s third-quarter earnings, which rose 26 per cent to $10.5 billion, putting it on track for annual earnings of some $40 billion, expected to be the largest yearly profit recorded so far.

Shell’s stock market recovery is adding to competition for the No 2 slot in the top tier of oil multinationals. The Dutch firm has been snapping at its British rival’s heels throughout the summer, moving ahead in August when BP revealed its pipeline problems and suffered a sharp loss of confidence among investors. But BP began to recover in September and the two were level-pegging in stock-market value until yesterday.

Peaking oil prices in the third quarter helped Shell’s headline profit, which was down 3 per cent owing to a $1.5 billion gain in 2005 from the sale of a Dutch gas pipeline business.

More surprising was an exceptionally strong performance from Shell’s downstream operation, which shrugged off weaker margins in the volatile business of manufacturing and selling road fuel. Oil output was also unexpectedly strong, unchanged at 3.2 million barrels per day, despite the impact of Nigerian disturbances which removed 185,000 bpd.

Peter Voser, Shell’s finance director, said the company’s refineries were performing better with less maintenance downtime, a critical issue for a business with huge fixed costs of plant and equipment.

Jeroen van der Veer, chief executive, said Shell was showing resilience in the face of high cost inflation. He denied rumours that the budget for Sakhalin-2, Shell’s gas project in Siberia, was again suffering cost inflation. Negotiations continue over the asset swap with Gazprom and the Russian giant’s shareholding in the project but insisted that Shell would retain a dominant role.

Last year, Shell admitted the cost had doubled to $20 billion but yesterday Mr van der Veer was unable to confirm whether the Russian Government accepted the new cost estimates.

Mr Voser said that the Russian Government suffered a delay in royalty receipts from LNG sales, as a result of the cost increase. He estimated that complete cost recovery for the Sakhalin project would not be achieved before 2013. 
 
http://business.timesonline.co.uk/article/0,,13130-2423917,00.html

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