Shell's profit surge adds to the pressure on troubled BP

Published on Wednesday 28 July 2010 22:24

SHELL pumped up the pressure on BP yesterday with a near-doubling of headline profits as the oil giant also unveiled plans to echo its beleaguered rival by boosting asset sales in an "uncertain" environment.

• Picture: TSPL

The British/Dutch group revealed that high oil prices and bigger-than-expected restructuring gains helped it to a 94 per cent leap in profits to $4.53 billion (2.9bn) in the three months to June. Shell had some big non-cash charges in the same period of 2009.

Despite the strong trading progress, Shell said it aimed to sell up to $8bn of assets over the rest of 2010 and 2011, days after BP said it was putting $30bn of assets on the block to help pay for the Gulf disaster. Shell had previously targeted 2bn of sales in the period.

Like BP, Shell's disposals will mainly be in exploration and production, with the aim that a better quality holding of fields will drive stronger growth.

Peter Voser, group chief executive, said: "This is a continuation of our strategy of high-grading our portfolio."

Excluding exceptional gains, Shell's Q2 profits rose 34 per cent to $4.2bn, compared with BP's plunge to a $17bn loss following a $32bn hit from repairing the Gulf of Mexico spill.

Shell's output rose 5 per cent in the second quarter against the same period last year, the second consecutive quarter of strong growth, averaging 3.1 million barrels of oil equivalent per day (boepd).

It said that despite its planned disposals, it still expected to meet its output target of 3.5 million barrels in 2012, compared with 3.2 million last year.

Simon Henry, Shell's chief financial officer, denied the company was copying the slim-down strategy of BP, its rival having said it expects output to fall from four million to 3.5 million boepd after its divestment programme.

"We may not be the only company targeting 3.5 million barrels per day but we are travelling in the right direction," Henry said.

Analysts at broker Petercam said in a research note: "The (Shell] production turnaround is now well under way and should only strengthen as the big projects come on stream in the next six months."

Shell's profits were helped by higher refining profit margins than a year earlier, as well as higher oil and gas prices than in 2009, when much of the global economy was still in recession.

"Upstream" exploration and production profits rose 56 per cent to $3.2bn, while refining earnings were back in the black against a year earlier with profits of $1.47bn

Shell said it outstripped restructuring targets, achieving annual savings of $3.5bn and cutting 7000 jobs, allowing it to wrap up its overhaul six months ahead of schedule.

On the outlook, Voser said he continued to see "mixed signals" in the global economy. He added: "Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas ‘spot' prices [for immediate delivery] all remain under pressure. The outlook remains uncertain."

American oil giant Exxon Mobil reported a far better second-quarter profit of $7.6bn, compared with $4.1bn last time, as oil prices and margins to process crude into fuel rebounded from a year earlier and production rose. Global crude oil prices have climbed 30 per cent from a year ago.