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The Guardian: Lower oil production blamed for Royal Dutch Shell profits fall

Mark Milner, industrial editor
Friday October 26, 2007

Royal Dutch Shell yesterday blamed lower oil production, weaker refining margins and higher costs for a fall in third quarter profits.

The company said that earnings on a current cost of supply basis – which strips out changes in the value of fuel inventories – fell from $6.9bn to $6.4bn.

However the group’s performance beat analysts’ expectations, helped by higher earnings from insurance and income.

Chief executive, Jeroen van der Veer, described the results as “satisfactory” in the light of the weaker refining margins and said they were underpinned by the group’s operating performance.

“We continue to rejuvenate our portfolio with sustained investment in new legacy assets and through disposals. The execution of our strategy is on track.”

Chief financial officer, Peter Voser, said overall oil and gas output was down 4%, with oil production, usually the highest source of earnings for oil companies, down 9%.

Earlier this year Shell sold control of the Sakhalin 2 project in Siberia to Gazprom but hydrocarbon production is expected to benefit from Deimos in the Gulf of Mexico and Norway’s Ormen Lange gas field, where production is under way.

Mr Voser played down political concerns surrounding areas where Shell is looking for future growth. Around 60 to 70% of longer term cash flow would come from areas regarded as low or very low risk such as Canada, the US, Norway, Qatar, Brazil and Australia, he said.

Mr Voser would not be drawn on whether oil would break $100 a barrel but acknowledged it was hard to explain the current level in terms of fundamentals.

He said Shell evaluated the economic case for development based on a range of possible oil prices. He also shrugged off a question about Shell’s potential role in a project to build a liquefied natural gas project in Iran. The economic and technical case was under consideration but when it came to a final decision the “political dimension” would also be a factor.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: “With the recent oil price highs not yet having washed through, refining margin difficulties and declining US gas prices, the oil majors found the going quite challenging during the period. For Shell, the numbers were not as weak as expected and the shares’ initial reaction to the news has been positive. The inevitable comparison with the current fortunes of BP will fall in favour of Shell, and the recent stock performance has confirmed that Shell is in a position to execute its strategy without the distractions of internal turmoil.”,,2199445,00.html and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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