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Shell Posts Higher Profit on Oil Prices, Production

Bloomberg

By Fred Pals – Jul 29, 2010 7:14 AM GMT+0100

Royal Dutch Shell Plc, Europe’s largest oil company, posted a 15 percent increase in second- quarter profit on higher oil prices and production.

Net income rose to $4.39 billion from $3.82 billion a year earlier, The Hague-based Shell said today in a statement. Excluding one-time items and inventory changes, earnings beat analyst estimates.

Peter Voser, in his second year as chief executive officer, has merged units, pledged as much as $8 billion of asset sales in 2010 to 2011. The U.S. ban on deepwater drilling following BP Plc’s oil spill will hold back development of Shell reserves in the Gulf of Mexico and Alaska.

“I expect Shell to be in the situation to continue to pleasantly surprise in the coming quarters,” Henry Dixon, a London-based fund manager at Matterley Asset Management, said before the earnings were released.

The results follow a record loss for BP after Shell’s close rival set aside about $30 billion earlier this week to pay for cleanup costs and liabilities arising from the Macondo well disaster. Exxon Mobil Corp., the largest U.S. oil company, is scheduled to report results later today.

Excluding one-time items and inventory changes, Shell’s earnings were $4.21 billion. That beat the $4.08 billion median estimate of 14 analysts surveyed by Bloomberg.

Stock Performance

Shell’s Class A shares traded in London are down 5.1 percent this year, compared with a 33 percent decline for BP, which at one point lost more than half its market value on concerns over the mounting cost of containing the leak.

Voser is targeting hard-to-reach rock formations in Australia, China and the U.S, as well as projects in Qatar, to boost production growth. As much as 40 percent of the company’s capital spending in the next few years has been earmarked for the Asia Pacific region. This year has already seen startups in the Gulf of Mexico and Brazil with Perdido and the BC-10 project, while the Sakhalin project in Russia has beaten production goals.

Producers including Shell face higher costs following a U.S. clampdown on offshore drilling arising from the oil spill. Shell has the most rigs affected by the ban.

Shell is still seeking to dispose of 15 percent of its refining capacity and is selling retail assets in Africa and Latin America, putting a total of 35 percent of its current retail markets under review. Voser is assessing more than 35 projects that may add 8 billion barrels of oil equivalent resources, boosting production until 2020.

Gas Share

Shell, which has been adding more gas than oil to its resources since 2005, expects the share of gas as a proportion of total output to rise to 52 percent in 2012.

Shell’s output at the Athabasca oil sand project in Canada was reduced because of maintenance works after being shut in mid-March. The unit restarted last month. The company’s production was also affected by the suspension of pumping at the offshore EA field in Nigeria.

Crude prices averaged $78.05 a barrel in New York in the three months ending June, an increase of 31 percent from a year earlier, boosting revenue for oil producers.

Refining margins are picking up after averaging $5.49 in the second quarter from $3.08 in the first three months of the year, according to BP’s Global Indicator Margin, a broad measure of the profitability of turning crude in to fuels.

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

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