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Shell defends deep water drilling as cuts boost profits

Royal Dutch Shell has defended the safety record of deepwater drilling, as cost-cutting helped it to make $4.4bn of profits in the last quarter.

By Rowena Mason
Published: 6:30AM BST 30 Jul 2010

The oil giant slashed its spending by $3.5bn over the last 18 months by shedding 7,000 staff and making operational savings. It saw a 15pc increase in profits – on a cost of supply basis stripping out inventory changes – and 49pc rise in pre-tax profits to $8.7bn.

Peter Voser, the chief executive, insisted that safety budgets and asset integrity had been ring-fenced from the cuts. US politicians have blamed cost-cutting for contributing to the Deepwater Horizon explosion and oil leak – an allegation that BP denies.

The Anglo-Dutch company intends to carry on making “efficiency savings” but said its radical restructuring programme had come to an end earlier than planned.

Mr Voser said Shell’s deepwater drilling programme should continue, despite concerns about the industry’s capability to cope with an oil spill a mile under the sea.

“The recent announcement of Shell’s participation in a new $1bn Gulf of Mexico oil spill containment system is an example of where we are working with governments and partners to improve the industry’s capabilities,” Mr Voser said. Shell has taken a $56m hit on the new US deepwater drilling ban after BP’s accident and stands to lose around $200m by November.

Last year, the company lagged behind the profitability of BP, but Shell has a production pipeline that is aiming for an increase from 3m to 4.5m barrels per day by 2014. Current output will be boosted when its huge Qatar gas projects comes on stream over the next year.

Meanwhile, BP is slimming down, reducing its daily output from 3.8m to 3.5m via a huge asset sell-off.

Shell is also intending to accelerate its programme of asset disposals to $8bn by the end of 2011, focusing on selling refineries and petrol stations. Mr Voser said this was to fund growth rather than make the company smaller.

“With the Qatari projects on track to start up by year end, we continue to believe that Shell offers the most compelling risk-reward proposition,” said Alejandro Demichelis, an analyst at Merrill Lynch.

Shell’s share price stayed largely flat yesterday, rising 6 to £17.13. An interim dividend of 42p will be paid on September 8.


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