The Independent: Shell raises the heat on BP with record profits

By MIchael Harrison, Business Editor
Published: 04 May 2007

Royal Dutch Shell added to the woes of its arch-rival BP yesterday by shrugging off lower oil prices and a fall in production to deliver record profits of $6.9bn (£3.5bn) for the first quarter of the year.

The 14 per cent profit increase compares with a 17 per cent slump in BP earnings for the first three months and took the markets by surprise since most analysts had assumed that Shell would also report a decline. Stripping out one-off gains, profits increased to $6.56bn, some 16 per cent ahead of analysts’ forecasts.

The profit improvement was tempered by a warning from Shell that output for the year as a whole was likely to be towards the bottom end of the company’s target range of 3.3 million barrels to 3.5 million barrels a day because of production problems in Nigeria.

Shell has been forced to slash production in the Niger Delta because of the growing security threat to its workers – a danger that was further highlighted yesterday after reports that at least six foreign workers from the Italian oil company Eni had been taken hostage in Nigeria.

Shell said that Nigerian production was 78,000 barrels a day lower in the first three months than the same period last year. Some 188,000 barrels a day of production remained shut-in at the end of the quarter and Shell said it could give no firm date for a return to full production given the volatile security situation.

Upstream earnings fell 6 per cent to $3.5bn, due to lower oil prices and a fall in gas production blamed on the warm weather. However, Peter Vosser, Shell’s finance director, said that the group had managed to maintain upstream margins at $13 a barrel – the same level as in the first quarter of 2006 – and that the market should not become too fixated with quarterly variations in production.

Shell caused a fright at its full-year results announcement three years ago by slashing its production guidance by between 300,000 and 500,000 barrels a day from the previous figure of 3.8 million barrels.

But yesterday’s results show that the oil giant has still managed to increase earnings by concentrating on more profitable production and increased capital discipline.

The company was also helped by an increase in profits from refining and marketing from $1.33bn to $1.48bn. Meanwhile, earnings from Shell’s chemicals division tripled to $480m.

Mr Vosser declined to be drawn on the problems at BP, where Lord Browne was forced to resign earlier this week as chief executive following the revelation that he had lied to the High Court about an affair with a gay lover.

Commenting on Shell’s own travails three years ago, when a reserves reporting scandal cost its top three executives their jobs and shareholders billions of pounds, Mr Vosser said: “We brought in new management and a new board, simplified the structure and put in place a long-term strategy. At the end of the day, it is people who make the difference.”

http://news.independent.co.uk/business/news/article2510926.ece

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