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Shell Boosts Asset Sales, Posts Consensus-Beating Profit

By Alexis Flynn


LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) Thursday raised the amount of asset sales it plans for this year as it posted consensus-beating adjusted profit for the first quarter due to high oil prices and a small increase in its production.

The results marked a return to form for Europe’s largest energy firm, which disappointed investors with lackluster numbers in the prior period. Shell’s strategy of focusing on boosting output from its gas-to-liquids and oil-sands projects paid off modestly, even though some analysts are wary that such unconventional projects rely on high energy prices to cover the higher costs of unconventional production.

“We are implementing our strategy by improving near-term performance, delivering a new wave of production growth and maturing the next generation of growth options for shareholders,” said Chief Executive Peter Voser.

“Asset sales for 2012 are likely to be over $4 billion, compared with our earlier guidance of $2 billion to $3 billion,” said Mr. Voser. He didn’t specify where or what assets would be sold.

The Anglo-Dutch company said the clean current cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other nonoperating items, was $7.28 billion in the three months ended March 31, up 15.7% from $6.29 billion in the first quarter of 2011. This was above analysts’ expectations of $6.75 billion. The adjusted figure is broadly comparable with net income under U.S. accounting rules.

Shareholders also received a 2.4% increase in their first-quarter dividend from last year, the company said, with the payout rising to 43 cents per ordinary share.

The continued ramp-up of production from giant unconventional projects, like the Pearl gas-to-liquids plant in Qatar and Shell’s Canadian oil sands upgrader, helped the company post a modest improvement in overall output.

Total oil and gas production was 3.552 million barrels of oil equivalent per day, an increase of about 1.4% on the year, although it was some 7.5% higher than in the fourth quarter. Analysts were expecting production to decline 0.6%.

However, net profit for the quarter dropped 0.7% to $8.72 billion from $8.78 billion a year ago. Higher purchasing costs, which rose nearly 11% to $94.06 billion, took some of the shine off the bottom line.

Shell’s Chief Financial Officer, Simon Henry, said this increase reflects higher-cost purchases of crude oil and raw materials. The price of international benchmark Brent crude was 12% higher in the first quarter of 2012 than a year earlier.

Group revenue was $123.77 billion, up 7.8% from $114.84 billion in the first quarter of 2011.

Diluted earnings per share were $1.40, compared with $1.42 the previous year.

Analysts hailed the result.

“It’s a good beat. It’s 10% ahead of our estimate of clean net income,” said Investec Securities’ Stuart Joyner. He cautioned, however, that refining and marketing earnings, which dropped 32% from a year ago, were a cause for some concern. “Downstream is very weak. There is still a bit of risk for downstream for the full year,” said Mr. Joyner.

Shell is well-placed for the long term, said Bernstein Research in a note to clients. “The company’s leading position in low decline-rate assets positions it well for long-term growth,” it said. “Shell also has one of the best exploration portfolios of the majors.”

-By Alexis Flynn, Dow Jones Newswires; +44 (0)20 7842 9471; [email protected]

(James Herron contributed to this report.)

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