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Royal Dutch Shell reports 58% profit fall on weak oil prices

April 30, 2009

Royal Dutch Shell blamed weaker oil prices and continuing violence in Nigeria for a 58 per cent fall in earnings. However, despite sliding profits, the oil group said that it would still pay out $2.4 billion (£1.6 billion) in dividends to shareholders for the quarter.

Shell’s 42 cents-a-share payout represents a 5 per cent increase on the same quarter a year ago.

The Anglo-Dutch group said that its current cost of supply (CCS) net income, which strips out unrealised profits or losses related to the value of its own fuel stocks, fell to $3.3 billion during the first three months of 2009 compared with $7.8 billion in the same period last year.

The result, which followed a 62 per cent plunge in rival BP’s earnings on Tuesday, reflected a more than halving in the average price paid to Shell for each barrel of oil it produced, down from $90.72 last year to $42.16. Peter Voser, the chief executive-designate of Shell, also blamed the weaker results on sluggish oil production in Nigeria, where security problems continued to hamper the company’s operations.

He said that outages in the African country, resulting from pipeline thefts and rebel attacks, had led to a cut of about 90,000 extra barrels per day — worth about $3.8 million at current prices — compared with the same period in 2008.

Last month Mansur Muhtar, the Nigerian Finance Minister, said that the country’s 2009 oil production had been averaging only 1.6 million barrels per day — almost half its installed capacity of 3 million barrels.

In total, Shell’s oil and gas production was stable at slightly less than 3.4 million barrels a day compared with the 4 million barrels a day announced by BP.

Shell’s tar sands operation, which extracts crude from the bitumen-rich sands of northern Canada, also slid to a $42 million loss in the first quarter because of the low oil price.

“I am pleased with Shell’s results in this tough environment,” said Mr Voser, who is set to replace Jeroen van der Veer when he retires in July. But Mr Voser said that Shell’s weaker results had been partially offset by a bumper trading profit in the quarter.

Shell markets and sells about 7 billion barrels of oil a year — almost double the level that it actually produces.He declined to comment on exactly how much the group had earned from its trading operation, but Shell was among a number of oil companies to have placed bets on rising oil prices after they dropped to lows below $40 in January. They have since recovered to trade at about $50 on Wednesday.

BP said that it had enjoyed a $500 million gain from its trading and supply division in the first quarter.

Mr Voser also said that, despite the downturn, Shell had no plans to reduce its $32 billion capital expenditure programme for this year.

Analysts said that the results were slightly better than expected and indicated that Shell was coping well despite the downturn. “Costs are clearly falling while revenues have begun to stabilise,” Richard Griffith, an Evolution Securities analyst, said.

Shell said that sales at the petrol pump were down 6 per cent while it was also facing weaker industrial demand for gas — a consequence of the global recession. “We have not seen the bottom,” Mr Voser said.

Shell’s debt levels rose during the quarter but were relatively low at 6.6 per cent at the end of the first quarter.

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