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Shell Says Repercussions of U.S. Drilling Moratorium Could Last Into 2012

Bloomberg

By Fred Pals and Eduard Gismatullin – Oct 28, 2010 11:53 AM GMT+0100

Royal Dutch Shell Plc, Europe’s largest oil company, warned that the knock-on effects of the temporary ban on new deep-water drilling in the Gulf of Mexico could last for the next two years.

Shell has booked charges of $115 million to date after idling rigs and expects further losses in the fourth quarter, Chief Financial Officer Simon Henry said today. Daily output from the region, which accounts for about a third of Shell’s total production in the Americas, will be 40,000 barrels less than previously expected in 2011.

“The moratorium and the delay to our drilling program is an opportunity lost,” Henry said on a conference call after Shell reported earnings that beat analyst estimates for the third straight quarter.

Earlier this month, the U.S. Interior Department issued new safety regulations and lifted the moratorium put in place after BP Plc’s Macondo well disaster. Shell pumped the equivalent of 230,000 barrels of oil a day in the first nine months of the year in the Gulf of Mexico, about 10,000 barrels a day less than would have been the case without the ban. “There could be a further impact in 2012,” Henry said.

Shell is the first of Europe’s biggest oil companies to have reported earnings. It was followed by Eni SpA, Italy’s largest energy producer, which reported a 48 percent increase in adjusted net income to 1.70 billion euros ($2.35 billion) because of higher oil prices. Total SA is scheduled to post results tomorrow and BP on Nov. 2.

Above Estimates

Excluding one-time items and inventory changes, Shell earned $4.9 billion in the third quarter. That beat the $4.3 billion mean estimate of 18 analysts surveyed by Bloomberg. Net income rose to $3.46 billion from $3.25 billion a year earlier, The Hague-based company said in a statement.

Chief Executive Officer Peter Voser said in a statement that Shell is in a “delivery window” with 13 new projects that will be started this year and next. Shell is reversing a seven- year decline in output at the same time BP struggles to recover from the worst oil spill in U.S. history.

“This is an excellent set of results,” said Peter Hutton, head of research at NCB Stockbrokers Ltd. in London. “It more than delivers on the expectation of momentum.”

Shell is targeting hard-to-reach rock formations in Australia, the U.S. and China, as well as projects in Qatar. Third-quarter production rose 5 percent to 3.058 million barrels of oil equivalent a day from 2.917 million barrels a year earlier.

LNG Sales

Liquefied natural-gas sales volumes increased to 4.26 million tons, with Shell citing “major contributions” from the Sakhalin II LNG project in Russia and Nigeria LNG.

Shell’s Class A shares traded in London rose 0.9 percent to 1,994.5 pence as of 11:20 a.m. The stock is up 6.3 percent this year, compared with a 29 percent decline for BP, which at one point lost more than half its market value as the costs of cleaning up the oil spill escalated.

Oil futures averaged $76.21 a barrel in the quarter, a 12 percent increase from a year earlier, and natural-gas futures rose 23 percent.

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

To contact the editor responsible for this story: Will Kennedy at [email protected]

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