Shell 'will maintain spending' despite profit plunge in Q4

Published on Thursday 29 January 2009 20:23

ROYAL Dutch Shell is to maintain its massive capital spending in 2009, as the oil giant yesterday also reassured its investors that it would not be at the expense of future dividends.

Unveiling a 28 per cent fall in Q4 profits in 2008 to $4.8bn (3.4bn) as the oil price plunged, Shell's chief executive Jeroen van der Veer said capital investment would stay near to last year's $32bn to safeguard profitability.

Van der Veer said: "Industry conditions remain challenging, and we are continuing the focus on capital and cost discipline."

Some investors had feared the gigantic capital spending programme and collapse of last July's record oil price of $147 a barrel to about 40 now, would threaten future dividends.

But Shell proposed raising the first-quarter payment of 2009 by 5 per cent to 42 cents yesterday, while also lifting its Q4 dividend 11 per cent to 40 cents.

Peter Heijen, an oil analyst at broker Theodoor Gilissen, said: "I think the most important thing was that they increased by 5 per cent, which is a sign that management has confidence in the business going forward at the current oil price."

A similar performance in Q4 is now expected from Shell's arch-rival, BP, which reports its results next week.

Tony Shepard, an oil specialist at broker Charles Stanley, forecasts BP's profits will fall to $3.5bn in the final quarter of 2008 compared with $4bn in the same period of 2007.

On the maintained capital spending at Shell despite the global recession, analysts said the company was still scarred by its experience in the late 1990s.

At that time the oil price had slumped to a 25-year low, and the company cut its investment programme, including its exploration budget.

That eventually contributed to the reserves scandal of 2004 when the group had to downgrade a fifth of its reserves, leading to a major boardroom shake-up and the ditching of its dual listed structure.

Shell's Q4 profits to December 2008 compared with $6.7bn a year earlier, and less than half the $10.9bn made in the previous three months.

Production of oil and gas was flat in the quarter compared with the same period in 2007 at 3.415 million barrels of oil equivalent per day, Shell said.

However, annual profits benefited from the higher oil price for much of last year and rose to $31.4bn (22bn), from $27.6bn in 2008 – a record for a European company.

The better yearly performance means Shell's global tax bill for last year is $24.3bn, up from $18.6bn the previous year.

In the UK alone in 2007 the group paid 465m in tax, with the figure for 2008 to be publicised in the forthcoming annual report.