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Shell Reports 33% Profit Increase

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Shell Reports 33% Profit Increase

Oil Prices Fuel Jump; 
Capital Investment 
Expected to Rise 50%
By BENOÎT FAUCON
August 1, 2008

LONDON — Royal Dutch Shell PLC posted a 33% rise in second-quarter net profit as the sharp rise in oil prices more than offset production lost from unrest in Nigeria and higher costs in its refining operations.

[Jeroen Van der Veer]

The Anglo-Dutch company, one of the world’s largest oil majors, also said Thursday it would plow much of the cash into acquisitions and new projects, announcing the largest investment target in its history, totaling as much as $36 billion in 2008.

The investment program — larger than the gross domestic product of Azerbaijan last year — follows similar moves by other oil majors and comes as consumers have been blaming a lack of investment in new production for the high oil prices.

Shell posted a net profit of $11.56 billion, or $1.87 a share, up from $8.67 billion, or $1.38 a share, a year earlier.

The rise reflected how booming oil prices have been boosted by a range of global factors, including tensions between Iran and the West. They have more than offset the continued disruptions in Shell’s Nigerian operations, where attacks in the restive African country cost Shell about 195,000 barrels of oil a day in the quarter, similar to year-earlier levels.

The company’s revenue totaled $131.42 billion in the quarter, up 55% from $84.9 billion.

Total oil and natural-gas production was down 1% to 3.05 million barrels of oil equivalent a day, from an average of 3.09 million barrels of oil equivalent a day a year earlier. The numbers exclude Canada’s oil-sands production.

But overall, “this is another set of competitive earnings for Shell shareholders. Good operating performance, combined with increased oil and gas prices, offset the impact of weaker downstream conditions in the second quarter,” Chief Executive Jeroen van der Veer said in a statement.

At a news conference, the CEO moved swiftly to fend off calls for a windfall tax, saying the company needed the cash to pump more crude for oil-thirsty markets. “We are making very large profits; I know that. But we are making very large investments,” Mr. van der Veer said.

The company said net capital investment for the full year is expected to be in the range of $35 billion to $36 billion, about 50% more than a previous forecast and the level in 2007. The new estimates include a 5.9 billion Canadian dollar (US$5.77 billion) takeover bid for Canadian natural-gas producer Duvernay Oil Corp. and recent acquisitions of exploration sites around the world amounting to the size of the Netherlands.

Crude-oil prices climbed steadily through the first half of the year, reaching a record at $147 a barrel in July. More recently, prices have been falling, with crude trading down $2.69 a barrel at $124.08 Thursday on the New York Mercantile Exchange.

High oil prices also boosted earnings at Italian oil company Eni SpA, which said Thursday that second-quarter net profit jumped 52% to €3.44 billion ($5.36 billion) from €2.27 billion a year earlier. The earnings were also lifted by higher output after a round of acquisitions. Net sales rose 37% to €27.11 billion from €19.78 billion.

Eni indicated that its shopping spree, totaling more than €9 billion since 2007, isn’t over as it considers buying out a Spanish joint venture.

The Rome-based company is looking at the equally owned natural-gas venture it has with Spain’s Union Fenosa SA, as it holds a preemptive right to it, Eni Chief Executive Paolo Scaroni said in a conference call with reporters. The Union Fenosa gas venture accounts for about 15% of the Spanish natural-gas market, providing Eni with a strategic toehold in Spain.

Spain’s Gas Natural SDG SA agreed Wednesday to buy a large stake in Union Fenosa and said it would later make a bid for the rest of the company. Eni expects to enter talks with Gas Natural in September over the venture, Mr. Scaroni said, adding that the company “might trigger” the preemptive right for change of ownership.

Meanwhile, Spanish-Argentine oil company Repsol YPF SA said its second-quarter net profit rose 11% to €905 million from €818 million a year earlier, as high oil prices compensated for exchange-rate-related losses. Net operating income grew 19% to €16.73 billion.

–Liam Moloney, Bernd Radowitz and Alex MacDonald contributed to this article.

Write to Benoît Faucon at [email protected]

http://online.wsj.com/article/SB121748477346100179.html

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