Profits at new record, but City sees cracks in Shell's figures

Published on Thursday 31 January 2008 20:38

THE prospect of lower future production and lacklustre reserves-replacement figures led to disappointment in the City yesterday despite Shell unveiling record profit for a European company of $27.6bn (£13.8bn) in 2007.

The oil major's 9 per cent profits rise over the year was largely shrugged aside by oil analysts concerned at insipid underlying data. Shell's shares closed unchanged at 1,744p.

Production was hit by the reduction of Shell's stake in the Sakhalin gas project in Russia, following pressure from the Kremlin wanting to reclaim control of much of the country's natural resources. Internecine violence closed the group's fields in Nigeria.

In addition, the company suffered technical problems at its Canadian unit which squeezes crude from bitumen-drenched sands.

City pessimism was deepened by Shell refusing to reaffirm growth plans for 2008 in the light of possible further falling production.

Peter Voser, Shell's chief financial officer, said output was likely to fall slightly this year, following an earlier forecast of 1-2 per cent growth to 2010. Voser also said, however, that he still expected growth of 2-3 per cent from 2010.

Shell also indicated that its year-end 2007 reserves replacement ratio – a key benchmark in the industry – might disappoint.

Jeroen van der Veer, chief executive, said the company added "at least one billion barrels" of new reserves in 2007.

This compared with two billion barrels in 2006 when the group's reserves replacement ratio was 150 per cent.

Shell normally publishes its reserves information with its results. A spokesman said a decision had been made to delay it until the group filed its results with the Securities and Exchanges Commission in the United States in March.

"This brings us into line with the likes of peers such as Exxon, Conoco and Chevron," the spokesman said.

Shell's capital expenditure, stripping out sales of busi-nesses, rose by more than the City expected to $23.8bn, compared with the company's estimate four months ago of $22-23bn.

It also increased its capex projections for future years substantially, reflecting the cost of getting oil and gas out of the ground.

Shell said underlying capex for 2008 would rise to $28-$29bn, against earlier projections of medium-term capex of $22-23bn.

Peter Hutton, at NCB brokers, said in a note to clients: "The results will do little to assuage concerns that large integrateds are unable to capture record prices"

US crude prices averaged over $90 per barrel in the final quarter of 2007, before busting the $100 barrier in January.