Shell Joins Rivals with Record Profits

Fri May 2, 2003 06:24 AM ET By Andrew Callus

LONDON (<a href=reuters.com>Reuters) - Royal Dutch/Shell joined its giant oil industry rivals in reporting record quarterly profits on Friday after war in Iraq, civil unrest in Nigeria and strikes in Venezuela stoked crude oil prices.

The world's second largest oil company said net profit adjusted to reflect the current cost of supply and other one-off items soared 96 percent year-on-year to $3.914 billion in the first quarter of 2003.

The result was above a range of analysts' expectations and the biggest profit Shell has ever turned in. Excluded from the adjusted figure was the impact of a $1.7 billion gain from the sale of 14.75 percent stake in German gas distributor Ruhrgas to German utility E.ON.

The news had little impact on its shares. Investors had come to expect a forecast-beating figure after results from the company's two main rivals earlier in the week, and their minds are now focused on the fall that has taken place in crude oil prices since the quarter's end, to below $25 a barrel from an average of over $30.

"If they hadn't been at the top of the range that would have been a disappointment," said analyst Peter Hitchens of French broker Cheuvreux.

Shares in Dutch arm Royal Dutch and London-listed Shell were slightly higher, up 0.7 percent and one percent respectively at 6:16 a.m. EDT, slightly outperforming the DJ Stoxx energy index, which was up 0.3 percent.

H1 BUYBACK STILL "UNLIKELY"

Analysts said its downstream gas and power result was a little better than expected, but one said the absence of any comment on the possible restart of share buybacks was "disappointing." Officials said the company's February position that a buyback was "unlikely in the first half" remained the case. Earlier this week, world oil numbers one and three Exxon Mobil and BP each delivered record first-quarter earnings. Exxon's more than tripled from a year ago (though its figures included the sale of its Ruhrgas stake) while BP's were up 132 percent.

War in Iraq and civil unrest in Nigeria threatened supplies of crude oil and took the average price of crude to a 12 year high in the quarter. Some of Shell's production was shut in Nigeria and still is, but the effect of the oil price far outweighed this.

Strikes in another oil producing nation, Venezuela, helped the crude price too and shut in fuel exports to the United States, sending the price of gasoline and other products soaring. Of the top three Shell is the leader in squeezing profits from refining and marketing.

Strong U.S. natural gas prices completed the rosy picture for the industry, producing some of the biggest quarterly corporate earnings hauls in history. The results were made all the more striking by tumbling earnings across other industries as economies slow around the world.

UNDERLYING GROWTH FLAT

Shell also produced six percent growth in oil and gas production in the quarter from a year earlier to 4.2 million barrels a day. However this included the acquisition of Enterprise Oil last year.

Underlying growth was flat, in line with recent forecasts from the company, and Shell officials told Reuters that the forecast of 4.1 million barrels a day for 2003 as a whole this year remained intact along with its three percent a year longer term output growth target.