European News

29, Jul 2010.

Royal Dutch Shell Plc, Europe’s largest oil company, posted a 15 percent increase in second- quarter profit on higher oil prices and production as it exceeded a target for cost savings.

Net income rose to $4.39 billion from $3.82 billion a year earlier, The Hague-based Shell said today in a statement. Excluding one-time items and inventory changes, earnings beat analyst estimates.

Peter Voser, in his second year as chief executive officer, expects to accelerate asset sales of as much as $8 billion by the end of next year. Cost savings of $3.5 billion beat an earlier target by about 15 percent and were completed early, resulting in 7,000 job reductions 18 months ahead of schedule.

“Overall, it’s a reasonable performance,” Jason Kenney, an Edinburgh-based analyst at ING Wholesale Banking, said by phone.

The results follow a record loss for BP after Shell’s close rival set aside about $30 billion earlier this week to pay for cleanup costs and liabilities arising from the Macondo well disaster. Exxon Mobil Corp., the largest U.S. oil company, is scheduled to report results later today.

Excluding one-time items and inventory changes, Shell’s earnings were $4.21 billion. That beat the $4.08 billion median estimate of 14 analysts surveyed by Bloomberg. Production rose 5 percent to 3.11 million barrels of oil equivalent a day.

Mixed Signals

Voser cautioned that the outlook for earnings and cashflow remain uncertain due to “mixed signals” in the global economy.

“Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure,” he said in the statement.

Shell’s Class A shares traded in London rose 0.3 percent to 1,793 pence as of 8:04 a.m. The stock is down 4.8 percent this year, compared with a 33 percent decline for BP, which at one point lost more than half its market value on concerns over the mounting cost of containing the leak.

Voser is targeting hard-to-reach rock formations in Australia, China and the U.S, as well as projects in Qatar, to boost production growth. As much as 40 percent of the company’s capital spending in the next few years has been earmarked for the Asia Pacific region. This year has already seen startups in the Gulf of Mexico and Brazil with Perdido and the BC-10 project, while the Sakhalin project in Russia has beaten production goals.

Higher Costs

Producers including Shell face higher costs following a U.S. clampdown on offshore drilling arising from the oil spill. Shell has the most rigs affected by the ban.

Shell is still seeking to dispose of 15 percent of its refining capacity and is selling retail assets in Africa and Latin America, putting a total of 35 percent of its current retail markets under review. Voser is assessing more than 35 projects that may add 8 billion barrels of oil equivalent resources, boosting production until 2020.

Shell, which has been adding more gas than oil to its resources since 2005, expects the share of gas as a proportion of total output to rise to 52 percent in 2012.

Shell’s output at the Athabasca oil sand project in Canada was reduced because of maintenance works after being shut in mid-March. The unit restarted last month. The company’s production was also affected by the suspension of pumping at the offshore EA field in Nigeria.

Crude prices averaged $78.05 a barrel in New York in the three months ending June, an increase of 31 percent from a year earlier, boosting revenue for oil producers.

Refining margins are picking up after averaging $5.49 in the second quarter from $3.08 in the first three months of the year, according to BP’s Global Indicator Margin, a broad measure of the profitability of turning crude in to fuels.