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Bloomberg: Shell Profit Climbs as Oil-Refining Earnings Gain (Update1)

By Stephen Voss and Fred Pals

July 26 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, said second-quarter profit rose 18 percent because it earned more from its refining operations.

Net income climbed to $8.67 billion from $7.32 billion in the year-earlier period, The Hague-based company said today in a statement. Profit excluding gains from holding oil inventories and one-time items was $6.9 billion, higher than the median estimate of $6.7 billion from 11 analysts surveyed by Bloomberg.

Record U.S. gasoline prices, the result of rising demand and refinery shutdowns, bolstered Shell’s profits and offset lost production from Nigeria. European competitor BP Plc two days ago posted better-than-expected earnings, partly because of record gasoline prices. Exxon Mobil Corp. reports later today.

“Shell’s second-quarter earnings will prove to be one of the best performances among the big European oil companies,” Ivor Pether, who helps oversee about $15 billion at Royal London Asset Management, said by phone from London yesterday. The money manager holds about $2 billion in Shell and BP shares, he said. Earnings from refining operations more than offset output losses, he said.

Brent crude futures averaged $68.66 a barrel, 2.5 percent less than the year-earlier period. U.S. gasoline retail prices reached a record $3.227 a gallon on May 23, according to the American Automobile Association.

Shell’s A shares in London slipped 1 pence yesterday to 1,969 pence. The shares of the company, which had its 100th anniversary this month, have gained 10 percent this year, topping the 3 percent increase at BP. Exxon Mobil shares this year have outperformed both rivals.

Production

Production of oil and gas in the quarter averaged 3.18 million barrels of oil equivalent a day, including oil sands, down 2.3 percent from the year-earlier quarter.

Shell has said it can’t guarantee a return to full output in Nigeria this year. The company in February predicted 2007 overall production of 3.3 million-to-3.5 million barrels of oil equivalent a day, from 3.47 million a day last year. A decline in output this year would be Shell’s fifth consecutive annual drop.

Shell Chief Executive Officer Jeroen van der Veer is directing billions of dollars of investment in unconventional oil projects, such as oil sands in Canada and a gas-to-liquids venture in Qatar, to make up for lost output.

The company suffered a setback in Russia at the hands of OAO Gazprom during the quarter. The state-run company completed its purchase of a majority stake in the Sakhalin- 2 oil and gas project in April, cutting Shell’s stake in half to 27.5 percent.

Shell in 2004 admitted it had overstated years of proven reserves estimates, prompting the resignation of its top three executives, investor lawsuits and regulator fines.

The company in April agreed to pay $353 million as a final settlement to European and other non-U.S. investor claims related to its 2004 restatement. On July 12, Shell said the number of institutional investors that expect to share in the settlement had grown in number to 81 from about 50.

London-based BP on July 24 said second-quarter net income rose 1.5 percent from a year ago to $7.38 billion, while adjusted profit measure fell less than expected, beating analyst estimates.

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

Last Updated: July 26, 2007 02:32 EDT

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