Guardian (UK): Shell profits up 21% to £13bn: Shell forced to admit… Sakhalin debacle will chop 0.4bn barrels from reserves

Terry Macalister, industrial correspondent
Thursday February 1, 2007

Shell is likely to run into protests from both climate campaigners and the car lobby after today unveiling annual profits of $25bn (£12.72bn) – up 21% – on the back of high oil prices and increased production.

The massive income figures, which amount to $70m a day of pure profit from its global network of production platforms, refineries and petrol stations, were described by chief executive Jeroen van der Veer as “good”.

The large numbers will increase the pressure on arch-rival BP, which is going through a turbulent period due to a series of accidents in the US, and which will unveil a fall in its annual profits when it reports next Tuesday.

But Shell was also forced to admit that what amounts to a forced sale by the Kremlin of a part stake in the Sakhalin gas project in Russia will chop 0.4bn barrels of oil equivalents off its 2007 reserves figures.

The company, which ran into trouble with the US regulator in 2004 for overbooking reserves, said it expected to be able to add an extra 2bn barrels of oil equivalents to its reserves figure this year if one included its high-cost oil sand assets in Canada.

The strong annual earnings performance – in line with City forecasts – was helped by a 21% increase in fourth quarter income to $5.2bn and the dividend for the last three months was raised 9% to €0.25.

Shares rose 36p to £11.75 in early trading.

Shareholders of the Shell benefited over the year to the tune of $16.3bn from either share buybacks or dividends while an additional $23bn was ploughed back into the business through capital investment, the company revealed.

New field start-ups helped Shell overcome some of the production difficulties it has been having in the Delta area of Nigeria which is being badly hit by civil disturbance.

“In 2006, we saw good operational and financial performance in Shell. Our exploration strategy is paying off,” said Mr van der Veer.

“Hydrocarbon production was underpinned by the production re-start from the Mars platform in the USA, growth in LNG and deep water Nigeria. However onshore Nigeria we continue to have major security related concerns.

“Downstream continued to deliver very competitive results. We increased our reserves, and took important investment decisions on projects in gas to liquids, deep water, unconventional oil and downstream.

“We have agreed to partner with Gazprom in Sakhalin II, and are progressing with the proposal to acquire the minority shareholding in Shell Canada.”

Friends of the Earth and other human rights and green groups have launched a campaign to coincide with the profit figures saying Shell should spend over $20bn in compensation on environmental damage caused by its operations globally.

Motorists in the past have reacted very negatively to high profit figures being released by oil companies arguing that the companies are profiteering at the expense of drivers.

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