Shell adds to pressure on rival BP as profits soar 77%

Published on Wednesday 27 July 2011 22:17

ROYAL Dutch Shell cranked up the pressure in its global battle for growth against arch rival BP yesterday with robust second-quarter profits and a claim that strong investment in new projects would boost falling production.

The British/Dutch oil giant's profits surged 77 per cent to $8 billion (4.9bn) in the three months to end-June as high oil prices, averaging $117 a barrel, masked the impact of lower crude and gas production.

Earlier this week, BP, still trying to rebuild itself after the Gulf of Mexico disaster, could only post a 13 per cent rise in Q2 profits to $5.6bn. BP's ill-starred efforts to expand into the Russian Arctic through a link-up with state-owned Rosneft also remains mired in litigation.

Shell revealed it had benefited from a 49 per cent lift in oil prices as well as an improved operating performance, although asset sales meant production fell 2 per cent to 3.05 billion barrels of oil equivalent per day (boepd) in the latest trading period.

The oil price rise was partly triggered by political and social unrest in the Middle East and North Africa, while output was also hit by warm weather in the second quarter.

However, Peter Voser, Shell's chief executive, pledged to deliver a "new wave" of production growth. "Shell reinvests its profits to meet customer demand for low-cost energy, and to pay attractive returns to shareholders," he said.

Shell invested $30bn in three new projects in the first half of 2011, a Canadian oil sands venture and two gas plants in Qatar.

Voser said: "The ramp-up of our new projects should drive our financial performance in the coming quarters." City analysts were supportive of the performance and prospects.

Tony Shephard, oil analyst at broker Charles Stanley, said the Canadian and Qatari projects had above-average production lives, and could support a dividend increase next year. Shell's second-quarter dividend was pegged at 42 cents.

Bernstein stockbrokers said the results were "solid", and believed Shell could increase its production. Analysts pointed out that, excluding asset sales, Shell's energy production rose 2 per cent compared with the same quarter of 2010. "It's a sign that the group's big project investment is already beginning to pay its way," one said.Shell recently revealed that it planned to invest a total of $100bn on new projects over the next four years.

Less positively, the oil giant's chief financial officer, Simon Henry, said that industry production inflation was returning after a period where oil companies have been seen as counteracting the pressures by squeezing suppliers.

Henry did not put a figure on the rise, but Norwegian-owned Statoil yesterday confirmed its Q2 production costs had risen 15 per cent.

Shell benefited from a turnaround in profitability at its "downstream" refining arm. The division's quarterly profits jumped 28 per cent on a year earlier to $1.88bn.

The company also announced an agreement with property firms Canary Wharf and Qatari Diar to redevelop Shell Centre, its distinctive 1950s-style London HQ near Waterloo station. The 27-storey tower in the centre of the development will be retained, it said.

Shell's shares closed up 1.5p at 2238.5p.