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Shell’s First-Quarter Profit Declines on Oil Price

April 29 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, said first-quarter profit fell 62 percent as a slump in crude prices reduced earnings from exploration and production.

Net income declined to $3.49 billion, or 57 cents a share, from $9.08 billion, or $1.46, a year earlier, The Hague-based company said today in a statement. Excluding inventory changes and one-time items, earnings beat analysts’ estimates.

Shell pledged last month to pay out around $10 billion in dividends this year, even as the company funds the industry’s biggest spending program to revive production growth. Profit from refining and marketing unexpectedly rose 3.4 percent to $1.23 billion.

“Shell beat expectations because of a good trading contribution in the downstream division,” Jason Kenney, an Edinburgh-based analyst at ING Wholesale Banking, said in a telephone interview. “There is still a bit of caution for the rest of the year.”

BP Plc, Shell’s smaller rival, yesterday reported a 64 percent drop in earnings to $2.58 billion as the global recession reduced demand for energy. Eni SpA , Italy’s biggest oil company, last week said profit fell 43 percent to 1.9 billion euros ($2.5 billion).

Excluding gains or losses from holding inventories and one- time items, Shell earned $2.96 billion. The median forecast in a Bloomberg survey of 11 analysts was for earnings of $2.56 billion on this basis. It raised the first-quarter dividend by 5 percent to 42 cents a share. Revenue dropped 49 percent to $58.22 billion.

Share Performance

Shell fell 13 percent in the first quarter, compared with an 11 percent drop for BP. The shares increased 1.2 percent to 1,558 pence as of 8:03 a.m. in London.

Of the 40 analysts that cover Shell, 22 recommend buying the stock, 10 have “hold” recommendations and eight advise clients to sell the shares.

Oil and gas production dropped 3.6 percent because of reduced Nigerian output and OPEC restrictions.

Total output, including bitumen from oil sands, declined to 3.396 million barrels of oil equivalent a day from 3.522 million barrels a year earlier, That beat the 3.377 million-barrel median estimate of five analysts surveyed by Bloomberg News.

‘Security Challenges’

“Upstream oil and gas volumes were impacted by ongoing security challenges in Nigeria, OPEC quota restrictions and weakening industrial demand for natural gas,” Shell said in the statement.

The producer said earlier this year that industry costs could drop as much as 50 percent to reflect the decline in oil prices. It has already postponed investment decisions on upgrading the deepwater Mars platform in the Gulf of Mexico and developing the Pierce field in the U.K.’s North Sea.

U.S. oil futures averaged $43.31 a barrel in the quarter, 56 percent lower than a year earlier, after plunging from a record $147.27 reached in July.

Shell is betting on capital-intensive projects such as a gas-to-liquids plant in Qatar and the mining of oil sands in Canada to boost production. The company said last month it plans to invest in new fields with a capacity of about 1 million barrels of oil and gas equivalent a day. It forecasts annual production growth of 2 to 3 percent in the first few years of the next decade.

Shell’s production may fall for a seventh consecutive year, the company said March 17, even as it reached a milestone at the end of the first quarter with the first commercial shipment of liquefied natural gas from its Sakhalin-2 venture in Russia.

Swiss-born Chief Financial Officer Peter Voser will take over as chief executive officer in July, succeeding Jeroen van der Veer, who is due to retire.

To contact the reporter on this story: Fred Pals in Amsterdam at[email protected]

Last Updated: April 29, 2009 03:18 EDT 

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