New York Times: Shell Q4 Profits Up as Output Rises: Sakhalin sale: ‘400 million barrels off its reserves base’

By REUTERS
Published: February 1, 2007
Filed at 3:38 a.m. ET

LONDON (Reuters) – Royal Dutch Shell Plc posted a 2.6 percent rise in underlying quarterly profits on Thursday, beating analysts’ forecasts, thanks to higher production and strong oil prices.

Shell said in a statement its fourth-quarter current cost of supply (CCS) net profit, which strips out changes in the value of inventory, was $6 billion, helped by profits from selling oil and gas fields.

For 2006, CCS profit was $25.4 billion, up 12 percent.

Excluding non-operating items, the underlying result for the fourth quarter was $5.5 billion, above an average forecast of $5.216 billion in a Reuters poll of 10 analysts.

Investors consider the pre-exceptional CCS result as the best measure of Shell’s underlying performance.

Shell’s London-listed A shares traded 1.81 percent higher at 1745 pence at 0809 GMT, outperforming a 1.08 percent rise in the DJ Stoxx European oil and gas sector index.

PRODUCTION, RESERVES

The second-largest Western oil major by market value, Shell said fourth-quarter production rose to 3.645 million barrels of oil equivalent per day (boepd) from 3.5 million boepd in the same period of 2005.

Full year output was down 1.3 percent at 3.47 million boepd, largely due to strife in Nigeria which has shut in fields. Chief Executive Jeroen van der Veer said in a statement he expected production of 3.3-3.5 million boepd in 2007.

Shell said the planned sale of a controlling stake in the giant Sakhalin-2 project in Russia to Gazprom would slice 400 million barrels off its reserves base and that this would be reflected in the 2007 reserves figures.

The Anglo-Dutch company said its reserves replacement ratio — the rate at which it matches production with new finds — was 150 percent in 2006, including oil-sands projects.

However, oil-sands projects are not bookable reserves under rules laid down by U.S. financial regulator the Securities and Exchanges Commission. Shell did not publish an SEC-based figure, the measure most watched by investors.

“What is especially important is that the reserve replacement ratio is higher than 100 percent. It is not as high as they say because you have to actually take out Sakhalin but it is still above 100 percent and until now they were below 100 percent,” said FBS Bankiers analyst Jaap Barendregt.

Shell’s fourth-quarter earnings rise was powered by its upstream division, which in addition to higher output, benefited from higher oil prices. Refining profits dropped, as margins narrowed, but exceeded forecasts.

Shell announced a fourth-quarter dividend of 0.25 euros per share, up 9 percent on the year, and said that from 2007 onwards it would declare its dividends in U.S. dollars rather than euros. For the first quarter, it expects to pay a dividend of 36 U.S. cents, up 14 percent on the year.

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