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Shell Profits Surge 88% On Higher Output,Refining

OCTOBER 28, 2010


LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) Thursday beat analysts’ forecasts to post an 88.4% rise in adjusted profit for the third quarter, driven by higher output and greater demand for refined products and chemicals.

The results show how the company is reaping the rewards of a lengthy restructuring focused on cost efficiency and recovering industrial demand, primarily in Asia.

“Our results have rebounded substantially from year-ago levels,” said Shell’s Chief Executive Peter Voser.

“Shell has the strongest momentum of any of the majors,” said NCB Stockbrokers analyst Peter Hutton. “On this basis we see another jump,” in Shell’s value, he said.

The Anglo-Dutch energy company said the clean current cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, was $4.93 billion in the three months ended September 30, compared with $2.62 billion in the third quarter of 2009. This was above average expectations of $4.32 billion in a Dow Jones Newswires poll of 11 analysts.

Sales from Shell’s refined oil products and chemicals divisions, which suffered most during the global downturn, rebounded strongly. Sales volumes of refined oil products were 4% higher year-on-year and chemical sales volumes, 13% higher. The bulk of the increase in chemical sales was related to the startup of a new petrochemical complex in Singapore.

“Asia-Pacific [downstream] has picked up quite a bit in the last six months,” said Shell’s Chief Financial Officer Simon Henry. “The U.S. remains challenging. Europe is still most definitely in a loss-making situation.”

“Shell is likely to be better than its peers…due to its greater exposure to the Far East, where refining margins improved,” said NCB’s Hutton.

Adjusted earnings at Shell’s refining and marketing division almost doubled to $1.45 billion in the third quarter, from $756 million a year earlier.

Total oil and gas production beat analysts’ expectation to rise 5.5% to 3.058 million barrels of oil equivalent per day, as new fields started up and Shell continued to benefit from improved security in the Niger Delta. The company’s Nigerian oil and gas production rose by 175,000 barrels of oil equivalent compared with the third quarter of 2009.

Adjusted profit in the exploration and production division more than doubled, benefiting both from the output increase and a reduction in costs, said ING analyst Jason Kenney. However, the company’s earnings were also supported by non-operational gains, notably higher tax credits and lower interest costs, he added.

Net profit for the quarter totaled $3.46 billion, up 6.7% from $3.25 billion a year ago. Shell’s net profit was reduced primarily by a one-off $1.13 billion charge the company took on fair value adjustments to commodity derivatives.

Group revenues were $90.71 billion, compared with $75.01 billion in the third quarter of 2009.

Diluted earnings per share were 56 cents compared with 53 cents the previous year.

At 0714 GMT Shell shares were up 0.8%, or 16 pence, at 1969p.

-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected]

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