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The Scotsman: Shell to reveal biggest ever profit by a British firm

SCOTLAND ON SUNDAY

Sunday 28 January 2007

GUY DIXON
 
OIL giant Royal Dutch Shell is expected to unveil the biggest profit ever recorded by a British company this week, clocking up earnings of up to $25bn.

But analysts say attention will focus on what Shell’s chief executive Jeroen van der Veer is doing to replace lost production capacity after the decision to sell 50% of the Sakhalin-2 project in eastern Russia to Gazprom, the state-controlled Russian giant. Shell agreed to sell a stake in Sakhalin Energy Investment Company (SEIC) for £3.8bn in December in a deal which resulted in the Anglo Dutch group’s stake being diluted to 27.5%. Citigroup said the deal would hit Shell’s reserves by around one billion barrels.

Analysts expect Shell to say underlying fourth-quarter profits slipped 3% to around £2.65bn owing to rising costs and a fall in the oil price, which has eased by 30% since hitting $77 in August. Because of the weakness of the dollar, the year-end profit may show a slight fall when translated into sterling, equating to around £12.7bn against £12.9bn last year.

Analysts expect Van der Veer to lower production targets on the back of the Sakhalin deal and problems in Nigeria, where production has been disrupted by violence.

Iain Armstrong, analyst at Brewin Dolphin, said: “We want to see how Shell is going to replace Sakhalin. [Before] you would have said that by 2009, there would be growth in terms of production. Now you have lost half of Sakhalin, and Shell is back to where it started.”

Shell is the first of the oil and gas majors announcing annual results in coming weeks, with BP and BG Group also reporting in February. Analysts expect all three to report lower fourth-quarter production figures because of falling oil prices.

Tony Shepard, analyst at Charles Stanley, said: “During 2006, Shell has delivered results above expectations, though Q4 has been more challenging. Problems in Nigeria and Russia may overshadow some better news on exploration.”

Van der Veer is also likely to be quizzed on progress in his efforts to buy the 22% of Shell Canada it doesn’t own. The group was forced to raise its offer to £3.7bn as it seeks to shore up its grip on its oil reserves.

http://business.scotsman.com/utilities.cfm?id=144442007

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