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Times Online: Shell raises profits 14% despite revenue fall

The Anglo-Dutch oil group’s first-quarter performance improvement came despite a weaker result from its core unit

May 3, 2007
Joe Bolger

Royal Dutch Shell, the oil group, has reported a rise in profits in spite of a weaker performance from its core exploration and production unit.

The group today reported higher group profits, helped by stronger performances from its chemicals and gas and power businesses.

Group earnings, on a “current cost of supply” basis, excluding changes in the value of stocks, rose 14 per cent to $6.9 billion, against the first quarter of last year. City analysts had, on average, expected earnings of $5.6 billion.

Revenues fell 3 per cent to $73.5 billion.

The group’s exploration and production (E&P) unit saw a drop in profits, on the back of lower oil and gas prices and declining volumes. The Anglo-Dutch group said performance in the division had also been knocked by higher costs in the first quarter of the year.

E&P profits fell to $3.5 billion (£1.8 billion) in the three months to March 31, from $3.7 billion in the same period of 2006. Oil production fell to 3.5 million barrels of oil equivalent per day, marking a 6 per cent dip on the same period of 2006. The fall was attributed to lower demand for gas in Europe because of the mild winter, while earnings in the US fell 10 per cent to $852 million.

Shell said it received 5 per cent less for the fuel it sold in the period, while US gas prices achieved were some 25 per cent lower.

The performance in the E&P unit came despite the benefit of a one-off $104 million gain from divestments.

Jeroen van der Veer, chief executive, said: “These are again competitive results, driven by operating performance. Our strategy is on track. We continue to refocus our portfolio, through disciplined capital choices.”

The company confirmed it handed over a majority stake in Sakhalin II, the Russian gas project, to Gazprom, the Kremlin-controlled gas group. Royal Dutch Shell cut its stake in the project from 55 per cent to 27.5 per cent as a result of the $4.1 billion deal. The group said the sale would be accounted for in the second quarter.

Last week it emerged that Shell is being forced to pay the Russian Government an annual dividend of about $100 million to keep its stake in the lucrative Sakhalin II offshore project.

The group said it would pay a first-quarter dividend of $0.36 per share, a 14 per cent improvement on the dollar equivalent dividend which was paid last year in euros. UK shareholders will receive 18.09p per share, once converted to sterling. That compares with a payout of 17.13p for the first quarter of last year.

The dividend will be paid on June 14.

Shell shares were trading up 36p, or 2.0 per cent, at £18.43 by 9.15am.

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