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Daily Mail (UK): Slick Shell wins battle of oil majors

By Sam Fleming
27 July 2007

ROYAL Dutch Shell trounced arch-rival BP with a bumper set of earnings, but boss Jeroen van der Veer failed to dispell doubts about the firm’s troubled production pipeline.

Profits stripping out one-time items rose 6pc to £3.4bn, thanks to a Rolls-Royce performance by Shell’s fleet of refineries, which benefited from record industry margins. Shell’s figures added to signs of a comeback almost as dramatic as BP’s decline.

Its shares have managed a 13pc gain over the past six months, twice the rise by beleaguered BP which is under attack from American Congressmen because of Alaskan oil leaks and the fatal Texas City fire.

Shell’s bumper earnings contrasted with a 13pc drop in BP’s profits to £2.6bn thanks to widespread outrage at its neglected American refineries.

Yet Anglo-Dutch Shell’s hold on investors’ affections will rely on its turning around the upstream division, and it is here that the story remains far more mixed.

Oil production fell 2pc, and van der Veer warned that full-year output will be at the lower end of the firm’s full-year target of 3.3m-3.5m barrels per day. Key to its woes is Nigeria, where widespread civil unrest and kidnappings have cast a shadow over the firm’s fortunes.

Van der Veer said he has no idea when the firm will be able to regain the 195,000 barrels of oil it is foregoing in the Niger Delta every day.

Adding to the uncertainty are high-risk exploration projects that face heavy headwinds.

Environmental activists have taken to the courts to fight Shell’s attempt to open up exploration acreage off the north Alaskan coast. Van der Veer said he still hopes to get drilling later in the year.

Meanwhile US shareholders have written complaining about a natural gas project in Iran because of the rising political tensions. Van der Veer said a decision on the £5bn deal was at least 12 months away.

And there is little clarity on whether deals with Russia’s Ros-neft and Gazprom will amount to anything more than warm words.

Citigroup analysts warned Shell is currently enjoying an earnings ‘sweet spot’ and that the firm will lose ‘lustre’ in the third quarter.

The ‘A shares fell 32p to l,937p. The dividend rose 14pc to 36 US cents a share.

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