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Profits at Shell set to anger drivers

Published on Sunday 29 January 2012 00:00

HIGHER annual and quarterly profits from oil heavyweight Royal Dutch Shell are this week expected to ignite the fury of hard-pressed drivers who continue to face near record prices at the petrol pump.

But the figures are likely to spell good news for investors as analysts raise the prospect that Shell, which boasts one of the largest dividends on the FTSE, may recommend an increase in the pay-out.

Although both full-year and quarterly numbers will be released, the City will focus on profits for the last three months of 2011, which are expected to be about 20 per cent higher compared to the same period in 2010.

However, analysts forecast they will be roughly 27 per cent below the third quarter as oil prices remained relatively flat over the final three months of 2011. That followed steep price gains earlier in the year driven by the political turmoil in the Middle East and North Africa.

The City spotlight on Thursday will also be on whether Shell confirms progress in getting American regulatory permits to explore an eventual potential oil bonanza off the Alaskan coast.

Jason Kenney, oil analyst with Santander, said: “Shell is a cash machine, but not really a growth entity. The ambitions [for Alaska] are still there, however.

“It [Alaska] will be a big exploration opportunity when it gets the full go?ahead, with identified targets [for oil exploration].”

Analysts at broker Charles Stanley believe Shell “should have room to increase the [Q4] dividend”. It cites cash flow of $45 billion (£28.6bn) generated in 2011 compared to capital spending of $27bn and dividends of $10bn in the first three quarters. The broker forecasts rival BP, which reports the following week, will peg its fourth-quarter dividend at seven cents.

Santander forecasts an underlying profit at Shell, on a current cost of supplies basis, of $4.9bn, up from $4.1bn in the same quarter of 2010.

For the full year, the bank’s broking arm expects profits will have gone up to $24.7bn from $18.6bn in the previous 12 months.

While Shell’s exploration and production division is expected to have boosted profits to more than $5bn in the final three months of its financial year, up 52 per cent, it is thought the downstream – refining and marketing – arm may have fallen to a loss of between $180m and $210m.

Refining and petrochemical margins have been under pressure throughout the whole energy industry, partly on lower chemical volumes and the weakness of the euro.

BP, which reports on 7 February, is also seen as having boosted earnings as it continues to put the Gulf of Mexico oil disaster behind it.

Charles Stanley forecasts that BP’s fourth-quarter profits will have jumped 22 per cent to $2.2bn.


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