Oil price increase helps to send Shell’s profits into overdrive

The Anglo-Dutch group’s profits rose 11 per cent to $7.66 billion (£4.75bn) in the three months to end-March as the average oil price shot up to $118.60 a barrel from $105.43 a year ago.

As production rose 1.4 per cent to 3.55 million barrels of oil equivalent per day, exploration and production profits climbed to $6.25bn in Q1 from $4.64bn.

The “downstream business” – essentially refining, minerals and marketing – reported a 32 per cent fall in profits to $1.12bn from $1.65bn a year ago and a $278m loss in the final quarter of 2011.

Shell’s chief executive Peter Voser said he saw “continued challenges” in refining and North American natural gas, where prices have fallen to ten-year lows as energy companies have tapped the controversial shale gas boom in the US.

Simon Henry, the group’s chief financial officer, said although Shell was well involved in shale gas exploration in countries such as the US and China, it had no current plans to hoist up very limited European and UK operations.

“The challenge [for shale gas] in the UK is not just geological, it’s the community impact. Europe is a small continent with a lot of people,” he said.

Similarly, Henry said that, although Shell was very committed to alternative energy globally, there were no current plans for wind and wave projects in Europe because the “economics don’t stack up”.

He said the company had looked at “green” projects in the Netherlands, Spain and the UK but “we don’t have the competitive edge in technology in wind. We cannot make the numbers go round”.

Anticipating possible criticism about the latest group profits surge at a time when customers are being squeezed by high energy and petrol costs, Voser said: “Our profits pay for Shell’s dividends and substantial investments in new energy projects, to ensure affordable, reliable energy supplies for our customers, which create value for our shareholders.”

Shell made $2.4bn of disposals in the quarter, and said it was increasing its divestment targets for 2012 to “at least $4bn” from an earlier aim of $2bn to $3bn. The group, like many in the oil industry, is striving to get rid of ageing assets in order to focus on higher-margin projects.

Shell, a key income stock for many institutional investors, raised its dividend 2 per cent to 43 cents a share, with Henry saying “we have not cut our dividend in decades… even in the credit crisis years”.

The oil giant’s shares closed up more than 3 per cent, or 67.5p, at 2,195.5p. Brokerage Citigroup said market forecasts for Shell’s future earnings were likely to rise on the back of the latest results.

One analyst noted: “Even with the challenges in natural gas and refining, Shell looks to have its act together.”