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Financial Times: Shell reports record profits of $27.6bn

By Dino Mahtani
Published: January 31 2008 08:18 | Last updated: January 31 2008 08:18

Royal Dutch Shell reported full year current cost of supply earnings of $27.6bn (£14bn), a record for a European company, despite lower oil and gas production and weaker refining margins.

Higher oil prices and one-off items helped lift profits by 9 per cent from the previous year and offset lower production figures at Europe’s biggest oil company.

For the year oil and gas production fell to 3.315m barrels a day of oil equivalent, down 4.5 per cent compared to 2006.

Fourth quarter earnings on a current cost of supply basis were $6.7bn compared to $6bn a year ago, with fourth quarter production figures falling to 3.436m barrels of oil equivalent from 3.645m in the same quarter last year.

“Overall these are satisfactory results,” said Jeroen van der Veer, chief executive, adding that the fourth quarter suffered from “weak refining margins”.

Exploration and production segment earnings were $4.9bn compared to $3.5bn a year ago, reflecting the impact of higher oil and gas prices on revenues.

But Shell said its fourth quarter and year end exploration and production results were nevertheless held back by higher taxes, royalty charges and higher costs. In addition, earnings were impacted by lower profits from the Sakhalin project, as a consequence of its partial divestment in the second quarter, as well as a fire at its 155,000 bpd Athabasca oil sands mine in Canada.

The oil products segment’s current cost of supply earnings were $876m compared to $1.47bn in the fourth quarter in 2006, impacted by lower refining margins and higher operating costs. Margins were impacted by downtime at refinery units, in particular the 458,000 bpd capacity Bukom refinery in Singapore.

End year results were also held up by Shell’s “corporate” line, which books earnings from higher insurance underwriting income, improved interest income and favourable foreign exchange movements. Shell’s full year corporate earnings were $1.387bn compared to $294m in 2006.

Excluding a net gain to non-operating items of $963m, fourth-quarter current cost of supply net income was $5.74bn. This compares with an average forecast of $6.1bn in a Reuters poll of nine analysts.

Most analysts still maintain a buy recommendation for Shell, despite concerns over its falling output. The company has been battered by militant attacks in Nigeria, which have shut down 189,000 bpd of the company’s output there. Shell’s stake in the Sakhalin-2 project was also halved to 27.5 percent last year, after Russia’s state run Gazprom completed its purchase of a majority stake in the project.

The company has also surprised analysts by not publishing a reserves update until it prints its annual report. “We regard this as regrettable,” said an analyst note from Dresdner Kleinwort.

Shell shares, which have risen 4 per cent in the last year, opened 1 per cent lower.

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