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Shell Loses Its Shine

Forbes – NY, USA

Shell Loses Its Shine

Lionel Laurent07.31.08, 9:10 AM ET

London: Royal Dutch Shell found BP too much of a tough act to follow on Thursday, after failing to match its rival with a solid, but uninspiring set of quarterly results.

Shell’s net profit of $7.8 billion, at aconstant cost of supplies, missed consensus estimates, while BP’s results earlier this week came in ahead of forecasts. (See “BP More Than OK, Despite TNK”) Although oil prices have hit record highs over the past three months, costs are also spiraling and Shell’s exposure to squeezed refining margins have not helped either. 

Royal Dutch Shell’s A-class shares fell 11 pence (22 cents), or 0.6%, to 18.26 pounds ($36.28), during afternoon trading in London on Thursday. BP, meanwhile, rose 2.5%, to 523.50 pence ($10.40), in London. 

“Even adding back the negative effect of commodity derivatives, Shell’s second-quarter 2008 net income fell short of BP’s for the first time since the second-quarter of 2006,” said Colin Smith, analyst with Dresdner Kleinwort. Shell took $750 million worth of non-cash charges for the quarter, related to the value of its commodity derivatives. 

Even though BP (nyse: BP – news people ) has its own troubles abroad with its TNK-BP venture in Russia, Shell’s(nyse: RDSA – news – people ) exposure to militant attacks in Nigeria meant its production declined over the year, while its refining business suffered from crumbling margins and higher operating costs. With oil at record prices, Shell’s profits from production nonetheless almost doubled, to $5.9 billion, but rising costs and the prospect of heavy spending on ramping up production meant that BP seemed more attractive on Thursday. 

Shell said it planned to invest $35-$36 billion in production growth for 2008, a higher-than-expected figure that may have spooked investors, according to Petercam analyst Alexandre Weinberg. But he told that previous estimates of $24-$25 billion did not include acquisitions, and that despite fears over costs, Shell’s upcoming projects were second to none in the industry. 

Also on Thursday, America’s Exxon Mobil (nyse: XOM – news – people) posted a record quarterly profit of $11.7 billion–more than any U.S. corporation has ever reported for a three-month period. Spain’s Repsol(nyse: REP – news – people ), meanwhile, reported semi-annual results that beat estimates, on a profit of $2.9 billion.

The Associated Press and Reuters contributed to this article.

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