Shell raises profits 14 per cent despite sharp revenue fall

A weaker performance from its core exploration and production unit was balanced out by stronger performances from its chemicals and gas and power businesses.

The result was in contrast to oil rival giant BP, which reported a 17 per cent slump in profits last week, blaming a fall in the price of oil and a decline in production volumes.

The group said it would pay a first-quarter dividend of $0.36 per share, a 14 per cent improvement on the dollar equivalent dividend which was paid last year in euros. UK shareholders will receive 18.09p per share, once converted to sterling. That compares with a payout of 17.13p for the first quarter of last year.

Average Brent oil prices were $57.76 during the three-month period, compared with $61.80 a year earlier. That meant earnings in exploration and production eased to $3.51 billion (1.76bn), from $3.74bn a year ago.

As well as weaker industry prices, Shell said the performance reflected lower production volumes, higher costs and increased pre-development activity. The company also benefited from a lower taxation rate, which was ahead of expectations at 35 per cent after being 43 per cent a year ago, due to a change in the mix of profits, partly from specific items and partly from a different mix in production locations.

Shell has already said that output is likely to be between 3.3 and 3.5 million barrels of oil equivalent a day during 2007, compared with 3.47 million seen for the whole of last year.

Shell group earnings, excluding changes in the value of stocks, rose 14 per cent to $6.9bn, against the first quarter of last year.

City analysts had, on average, expected earnings of $5.6bn. Revenues fell 3 per cent to $73.5bn.

The exploration and production (E&P) unit saw a drop in profits, on the back of lower oil and gas prices and declining volumes. The UK-Dutch group also said performance in the division had also been knocked by higher costs in the first quarter.

E&P profits fell to $3.5bn in the three months to 31 March, from $3.7bn in the same period of 2006. Oil production fell to 3.5 million barrels of oil equivalent per day, marking a 6 per cent dip on the same period of 2006, attributed to lower demand for gas in Europe because of the mild winter, while earnings in the US fell 10 per cent to $852m.

Jeroen van der Veer, Shell's chief executive, said: "These are again competitive results, driven by operating performance. Our strategy is on track. We continue to refocus our portfolio, through disciplined capital choices."

The company also confirmed it handed over a majority stake in Sakhalin II, the Russian gas project, to Gazprom, the Kremlin-controlled gas group. Shell cut its stake in the project from 55 per cent to 27.5 per cent as a result of the $4.1bn deal. The group said the sale would be accounted for in the second quarter.