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Shell results highlight challenges facing Voser

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By Maggie Urry

Published: October 30 2008 08:33 | Last updated: October 30 2008 08:33

Royal Dutch Shell, which on Wednesday named Peter Voser, its finance director, to be its next chief executive, on Thursday showed some of the challenges that will face him as it reported third-quarter earnings that were less buoyant than those from rival BP earlier this week.

Net income on a constant cost of supplies basis rose 71 per cent to $10.9bn. However, that figure included substantial one-off gains, including profits on disposals and mark-to-market valuations of some contracts. Excluding these, underlying earnings were $8.84bn, up 44 per cent.

BP had reported a near doubling of underlying earnings in the same period, well ahead of analysts’ expectations.

Jeroen van der Veer, the chief executive who is planning to leave next summer, called the results, which benefited from the sharp rise in the oil price, “satisfactory”. The group was “watching the world economic situation closely” but was “robust across a wide range of energy prices”.

However, Shell did promise “competitive and progressive dividends”, echoing BP’s recognition on Tuesday that investors are concerned about the income from their shares. Shell declared a third-quarter dividend of 40 cents a share, a rise of 11 per cent over the same quarter last year. Sterling investors will receive 24.54p and euro-based investors will get 31.13 cents.

Shell said that through a combination of dividends and share buybacks it had returned $3.1bn to shareholders in the quarter, while gearing remained low at 15.4 per cent.

The shares were up 33p to £17.38 in early trading.

For the first nine months of the year, Shell reported constant cost earnings up 27 per cent to $26.6bn. Excluding the one-offs, the rise was 25 per cent to $24.5bn.

While Shell, like BP, benefited from sharply higher oil prices in the period, it suffered a fall in both production and refinery availability, with hurricanes in the Gulf of Mexico in part blamed for both.

Oil and gas production fell by 6.6 per cent in the quarter, with the hurricanes, and planned maintenance in the North Sea causing nearly all that fall. Oil refinery availability fell from 93 per cent in the third quarter of 2007 to 88 per cent in this year’s third quarter. The chemicals manufacturing plant suffered an 8 percentage point drop in availability to 86 per cent. Both were “significantly impacted by the hurricanes in the US,” Shell said.

Earnings from the exploration and production division were still 65 per cent ahead to $5.5bn, but the fall in refinery availability meant the group’s oil products division made a loss in the quarter of $44m, compared with a profit in the same period of 2007 of $2.15bn. The chemicals business made a loss in the quarter of $79m, compared to a profit of $397m.

In the third quarter Shell’s average realised oil price was $111.18 a barrel, a 57 per cent rise on the $70.81 achieved in the same quarter of 2007. For the first nine months of the year the average price achieved was $104.54, up 65 per cent from $63.23 for the same period of 2007. The oil price has recently fallen back to around that level.

 

EDITOR’S CHOICE

Lex: Voserville – Oct-30

In depth: Oil – Sep-15

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