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Forbes: Shell Rides High On Cutback Rumor

Vidya Ram, 06.15.07, 2:00 PM ET

LONDON – Royal Dutch Shell proved on Friday that its shares are well slicked against the problems plaguing its Nigerian operations.

Shares in the Anglo-Dutch energy company ended the day up, despite a published report that it would cut spending in its operations in Nigeria to combat spiraling costs and lost revenue.

The company’s A shares closed up 42 pence (83 cents), or 2.1%, to £20.02 ($39.58), while its B shares closed up 49 pence (97 cents), or 2.5%, at £20.40 ($40.34) in Friday trading, both comfortably above the market average. The FTSE 100 closed up 82.50 pence, or 1.2%, at 6,732.40 points.

A Shell spokeswoman said that in Nigeria the company would be taking “a series of measures aimed at improving performance” as part of a wider global strategy for boosting performance that will be rolled out over the next three years. However, she said it was “too early to give further detail and any specifics at this stage.”

Royal Dutch Shell (nyse: RDSA – news – people ) wants to cut over $100 million in spending and more than 200 jobs over the next three years as part of the cost-cutting exercise, The Wall Street Journal reports.

The rumors may well be true, given the ongoing problems the company has been facing in Nigeria. Its facilities there have been subject to attacks by anti-government rebels, who have kidnapped employees and blown up pipelines, disrupting production. But these problems do not necessarily spill over into other operations.

The cutbacks in Nigeria could be viewed as a positive for the company. A series of kidnappings in the war-torn country were partly responsible for the decline of 6.4%, or 80,000 barrels a day, in Shell’s oil production for the first quarter.

Shell’s year got off to a good start. In May, the company announced that its first-quarter net income rose 5.7%, to $7.3 billion, from $6.9 billion in the similar period in 2006. Shell was one of the only oil producers that managed to record a profit for the quarter. Although, like its competitors, its profit was dented by a fall in the price of oil, it offset this problem with an increase in its earnings from refining.

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