The Guardian: Tale of two oil firms: Shell boosts profits as rival BP in turmoil

· Earnings lifted by one-off asset sales and lower tax
· Company still faces big problems at Nigerian wells

Terry Macalister
Friday May 4, 2007

Shell turned the screw on its struggling arch-rival BP yesterday when it reported a 14% rise in first-quarter net profits at $6.9bn (£3.47bn). It was higher than the City expected and a notable result compared with the 17% fall in earnings BP reported last week.

Shell’s profits were boosted by lower taxes and gains on one-off investment sales, as well as higher refining margins. These compensated for a 6.3% slump in core oil and gas production due to problems in Nigeria and slower sales due to the relatively warm winter.

Jeroen van der Veer, the Shell chief executive, hailed the “competitive results”, which he put down to a strong operating performance. “We have progressed two large and complex transactions, Sakhalin II and Shell Canada, which consolidate our position in two major resource areas. Our strategy is on track,” he said.

Shell shares moved up 2% to £18.06 in London as City analysts noted the company had beaten their consensus forecasts for its earnings for the fifth successive quarter. Analysts at Citigroup questioned whether they had “structurally underestimated the cashflow generation of some of the company’s assets”.

But Shell was helped by its tax rate dropping from 42% to 35% and by a $404m special profit its insurance arm made from the sale of equity investments as it moved into bonds and other holdings.

There was an additional $371m gain related to non-operating items such as oilfield sales but the real increases will come in the second-quarter figures as Shell books the sale of $4.1bn of its stake in Sakhalin II to Gazprom, the Russian state owned energy company, after pressure from the government there.

The strong Shell results come at a time when BP is reeling from the resignation this week of its high-profile chief executive, John Browne, following a court case in which he had lied about the way he met a former partner. The top post has been taken on by Tony Hayward, who had been lined up to succeed Lord Browne this summer.

Although BP reported weaker financial results last week, its share price continues to outperform Shell’s by around 11% under some measures. Shell still has a number of obstacles on its hands, such as production in Nigeria.

First-quarter production from Shell’s Nigerian operation was 78,000 barrels a day lower than a year ago due to deferred output from the West Delta region, which has been hit by attacks from militant groups. Shell said yesterday it could give no firm date for a return to full production and restricted access to the area “continues to impact the future drilling programme and the progress of new projects”.

Earnings in the first quarter from exploration and production were down 6% at $3.5bn while production was also down 6%, at 3.5m barrels of oil equivalents. But higher refining and marketing profits, plus a better performance from chemicals and power units helped overall profits.

Analysts at City broker Charles Stanley said: “The share price is underpinned by a strong balance sheet … good operating cash flow and another good year for reserves replacement is in prospect.”

http://business.guardian.co.uk/story/0,,2072134,00.html

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