Bloomberg: Shell Net Income Advances on High Oil Prices (Update2)

By Fred Pals

Oct. 25 (Bloomberg) — Royal Dutch Shell Plc, Europe’s biggest oil company, said third-quarter profit climbed 16 percent, boosted by record crude prices.

Net income rose to $6.92 billion, or $1.10 a share, from $5.94 billion, or 93 cents, a year earlier, The Hague-based company said today in a PR Newswire statement. Excluding one- time items and gains or losses from holding inventories, profit beat estimates for the seventh straight quarter.

Crude prices in New York were an average 6.4 percent higher in the third quarter than a year earlier and reached a record $90.07 a barrel Oct. 19. Shell, whose output has dropped for four consecutive years, plans to revive production growth through projects including a natural gas-to-liquids venture in Qatar and Canadian oil sands projects. BP Plc two days ago reported a 29 percent decline in net income.

“With these results, Shell is sending a very strong message after an exceptional quarter last year,” Bertrand Hodee, a Paris-based analyst at Kepler Equities, said in an interview yesterday. Hodee has a “buy” rating on the stock.

Chief Executive Officer Jeroen van der Veer, whose contract was extended in March, is betting refinery profits will recover after a slump in the period. Shell said last month that it would spend $7 billion with Saudi Arabia to more than double the size of their Texas plant. The Port Arthur project would be the biggest U.S. refinery expansion in three decades and would make it the largest in the nation.

Share Gain

Shell’s A shares in London have advanced 15 percent this year, outpacing an 8 percent rise by BP. Shell stock closed at 2,056 pence yesterday.

Profit excluding inventory changes and identified one-time items for the quarter was $6.13 billion, beating the median analyst estimate of $5.58 billion.

Of the 38 analysts tracked by Bloomberg who cover Shell, 24 have a “buy” rating for the shares. Thirteen analysts advise holding the stock, with one recommending “sell”.

Shell slashed its proven oil and gas reserve estimates in January 2004, which led to fines, investor lawsuits and the removal of the company’s top three executives, including Chairman Phil Watts.

Shell last month idled the equivalent of 370,000 barrels of daily oil output because of a hurricane threat. Production at the Port Arthur, Texas, refinery was also curbed as a storm knocked out power in the area. The same month, Shell’s 100,000 barrel-a-day refinery in Buenos Aires was shut on government orders.

Refining Margins

Refining margins, or profits from turning crude into fuels such as gasoline and diesel, fell to $8.05 a barrel in the third quarter from $8.49 in the year-earlier period, according to BP.

London-based BP said two days ago that third-quarter net income slid to $4.41 billion, while the adjusted profit measure fell less than expected. ConocoPhillips, the third-largest U.S. oil producer, said yesterday that net income in the period fell 5.2 percent to $3.67 billion as refined fuel prices failed to keep pace with gains by crude, narrowing profit margins on gasoline and diesel.

Earlier this month, Shell lifted a delay on exports from its Forcados terminal in Nigeria after militant attacks halted production since last year.

The lifting of force majeure, a legal clause allowing a company to cancel its contractual obligations, followed shipments of stored oil at the terminal.

Militant attacks against oil installations in the Niger Delta since the start of 2006 forced Shell’s Nigerian unit to halt output of about 500,000 barrels a day, almost a quarter of the country’s production.

Shell suffered a setback in Russia at the hands of OAO Gazprom this year when the state-run company completed its purchase of a majority stake in the Sakhalin-2 oil and gas project. That cut Shell’s stake in half to 27.5 percent.

Shell will lose some of its reserves this year because of the change in control at Sakhalin-2.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected]

Last Updated: October 25, 2007 02:39 EDT

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