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Bloomberg: Shell Net Climbs as Chemical, Refining Earnings Rise (Update5)

By Fred Pals and Stephen Voss

May 3 (Bloomberg) — Royal Dutch Shell Plc, Europe’s biggest oil company, reported an unexpected increase in first- quarter profit on a surge in revenue from refining crude and making chemicals.

Net income climbed to $7.28 billion, or $1.15 a share, from $6.89 billion, or $1.05, in the year-earlier period, The Hague- based company said today. Profit excluding one-time costs and gains was $6.6 billion, higher than the median estimate of $5.61 billion in a Bloomberg survey of nine analysts.

“They’ve beaten expectations again,” said Ivor Pether, who helps oversee about $15 billion at Royal London Asset Management. “The refining business is performing strongly as are chemicals.”

Near-record gasoline prices in the U.S. close to $3 a gallon helped Shell overcome a drop in oil and gas production. Shell today said it’s preparing to resume oil production in Nigeria, where supplies have been curbed for more than a year because of militant attacks that have pushed up world crude prices.

The company’s oil products division, which handles the business of refining crude into gasoline, had a profit, excluding one-time items, of $1.49 billion, up 12 percent, while profit at the chemicals unit more than tripled to $480 million.

Offset Output

Higher refining margins and chemical profit more than offset lost oil production from Nigeria. Shell’s oil and gas output, including oil sands, was 3.51 million barrels a day last quarter, down 6.3 percent from a year earlier.

Shell’s 5.6 percent increase in net income placed it between competitors BP Plc and Exxon Mobil Corp., which last week reported a 17 percent drop and 10 percent gain, respectively.

Shell’s London-traded A shares rose 39 pence, or 2.2 percent, to 1,809 pence as of 12:30 p.m. local time. The stock is little changed this year. BP shares are also little changed, while Exxon Mobil is up 4.2 percent.

Since February 2006, Shell’s venture in Nigeria has halted output of 477,000 barrels a day, or about half of its average daily production. In March, it shut an additional 187,000 barrels a day of supplies for about four weeks because of a pipeline leak in the Niger Delta.

Resume Production

Shell, the biggest foreign oil producer in Nigeria, plans to increase production to pre-February 2006 levels in the “coming months” after completing site inspections and following the presidential elections, Chief Executive Officer Jeroen Van der Veer told reporters on April 5.

“Following an improvement in the security situation, preparations for a restart are under way” in the western Niger Delta, Shell said today, adding that no firm date could be given for the resumption.

Profit at Shell’s exploration and production division, its biggest business unit, fell 6 percent to $3.5 billion, excluding one-time items, because of declining oil and gas prices and lower production.

U.K. natural gas prices in the first quarter were about a third of their year-earlier levels. Brent crude averaged $58.62 in the period, down 6.4 percent from the same quarter of 2006.

Shell’s daily production last quarter was at the top end of a range of 3.3 million barrels to 3.5 million barrels that it expects for the year as a whole, assuming some Nigerian output remains offline for the rest of the year.

Lower Rate

Profit was helped by a reduction in the company’s overall tax rate. Shell spokesman Wim van de Wiel said the tax rate was 35 percent last quarter. The rate fell because Shell had higher profits from the refining business, which typically have a lower tax take than the exploration and production business.

Equity portfolio sales in Shell’s insurance business, which raised $404 million, contributed to a net one-time gain of $371 million in the latest quarter.

The company plans to buy back more shares “shortly” after purchasing half a billion dollars of stock in the first quarter, Peter Voser, Shell’s chief financial officer, said in a conference call. He said on Feb. 1 he’s not a `philosophical believer” in share buybacks because they haven’t delivered the stock gains some investors expected.

The dollar’s 3 percent drop against the euro this year, following a 10 percent slide in 2006, “could impact our earnings because of our European cost base,” Voser said.

Last year, Shell regained its position as Europe’s biggest oil company by market value, as BP faced Alaskan pipeline leaks and the aftermath of the Texas City, Texas, refinery blast.

On April 18, Shell closed Russia’s Sakhalin-2 transaction, selling half of its 55 percent stake in the natural gas export venture to OAO Gazprom for about $4.1 billion. While reducing its holding in Sakhalin, it bought a remaining 22 percent minority stake in Shell Canada for $7.5 billion.

Total SA, Europe’s third-largest oil company, is due to report earnings tomorrow.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected] ; Stephen Voss in London at [email protected]

Last Updated: May 3, 2007 07:43 EDT

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