Shell profits soar on high oil
Reuters Business Channel | Reuters.com
"Thu Jul 28, 2005 4:06 AM ET"
By Tom Bergin
LONDON (Reuters) - Royal Dutch Shell Plc, the world's third-largest oil company by market value, fell short of analysts' forecasts with a 22 percent jump in underlying second-quarter profit on the back of high oil prices.
Shell said on Thursday its second-quarter current cost of supply (CCS) net profit, which strips out gains from the rising value of fuel inventories, was $4,626 million, up from $3,663 million for the same period last year.
Excluding a non-operating charge of $545 million, the "clean" CCS result, the measure most watched by investors, was $5,171 million.
A Reuters poll of 10 analysts gave an average forecast for second-quarter clean CCS net profit of $5,443 million, up from $4,254 million for the April-June quarter last year.
Shell's shares opened lower following the results. Its A shares were down 1.1 percent at 1,715 pence at 0742 GMT, while its B shares fell 0.95 percent to 1,773p. The DJ Stoxx European oil and gas index was down just 0.34 percent.
The main driver of the profit increase was the upstream oil and gas exploration and production division, where profits rose sharply on higher oil prices. Crude oil reached a record $60 a barrel in the second quarter.
However, this unit, Shell's largest, was also the main source of underperformance, as analysts had expected Shell to reap even more benefit from the high price environment.
"We were surprised by the result of oil products, which is higher than expected. But we were disappointed with the exploration and production results and especially gas and power," Margarita Shevtsova, analyst at Bank Oyens & van Eeghen said.
"The CCS figure is worse than expected. Generally we're disappointed with the result," she added.
This undershooting of upstream forecasts was despite higher than expected oil and gas production, which averaged 3.526 million barrels of oil equivalent per day (boepd) in the second quarter. Analysts had forecast output of 3.49 million boepd.
STICKS TO CAPEX PLANS
Shell said it was increasing its exploration spend for 2005 and 2006 to $1.8 billion annually, from $1.5 billion. It said it was increasing exploration activity but the rise could also be due to rampant inflation in the oil services sector.
However, investors will be reassured that Shell stuck to its previous guidance on capital expenditure for 2005 of $15 billion, despite doubling the expected cost of its flagship Sakhalin-2 project off Russia's east coast to $20 billion.
The results were the first since Shell became a unified company this month. Previously the group was co-owned by Dutch and British holding firms which appointed executives to a joint management board.
The ownership structure was changed in response to investors' demands following a damaging reserves overbooking scandal last year that was partly blamed on the complicated management system.
Oil and gas firms are recording fat earnings on the back of high oil prices but Shell's result lags the rise of almost 50 percent in profits that analysts had expected for the sector this quarter.
Rival BP Plc reported record underlying quarterly profits on Tuesday, up over 40 percent on the year.
"Thu Jul 28, 2005 4:06 AM ET"
By Tom Bergin
LONDON (Reuters) - Royal Dutch Shell Plc, the world's third-largest oil company by market value, fell short of analysts' forecasts with a 22 percent jump in underlying second-quarter profit on the back of high oil prices.
Shell said on Thursday its second-quarter current cost of supply (CCS) net profit, which strips out gains from the rising value of fuel inventories, was $4,626 million, up from $3,663 million for the same period last year.
Excluding a non-operating charge of $545 million, the "clean" CCS result, the measure most watched by investors, was $5,171 million.
A Reuters poll of 10 analysts gave an average forecast for second-quarter clean CCS net profit of $5,443 million, up from $4,254 million for the April-June quarter last year.
Shell's shares opened lower following the results. Its A shares were down 1.1 percent at 1,715 pence at 0742 GMT, while its B shares fell 0.95 percent to 1,773p. The DJ Stoxx European oil and gas index was down just 0.34 percent.
The main driver of the profit increase was the upstream oil and gas exploration and production division, where profits rose sharply on higher oil prices. Crude oil reached a record $60 a barrel in the second quarter.
However, this unit, Shell's largest, was also the main source of underperformance, as analysts had expected Shell to reap even more benefit from the high price environment.
"We were surprised by the result of oil products, which is higher than expected. But we were disappointed with the exploration and production results and especially gas and power," Margarita Shevtsova, analyst at Bank Oyens & van Eeghen said.
"The CCS figure is worse than expected. Generally we're disappointed with the result," she added.
This undershooting of upstream forecasts was despite higher than expected oil and gas production, which averaged 3.526 million barrels of oil equivalent per day (boepd) in the second quarter. Analysts had forecast output of 3.49 million boepd.
STICKS TO CAPEX PLANS
Shell said it was increasing its exploration spend for 2005 and 2006 to $1.8 billion annually, from $1.5 billion. It said it was increasing exploration activity but the rise could also be due to rampant inflation in the oil services sector.
However, investors will be reassured that Shell stuck to its previous guidance on capital expenditure for 2005 of $15 billion, despite doubling the expected cost of its flagship Sakhalin-2 project off Russia's east coast to $20 billion.
The results were the first since Shell became a unified company this month. Previously the group was co-owned by Dutch and British holding firms which appointed executives to a joint management board.
The ownership structure was changed in response to investors' demands following a damaging reserves overbooking scandal last year that was partly blamed on the complicated management system.
Oil and gas firms are recording fat earnings on the back of high oil prices but Shell's result lags the rise of almost 50 percent in profits that analysts had expected for the sector this quarter.
Rival BP Plc reported record underlying quarterly profits on Tuesday, up over 40 percent on the year.
posted by Marcel at 5:55 AM
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