Shell Q2 profits soar by 34% while production falls
Oil and gas major Royal Dutch Shell on Thursday said earnings for the second quarter of 2005 were 34% higher than for the year-ago quarter on the back of higher oil and gas prices even as the company’s production levels fell. This was the first quarterly report since Shell’s British and Dutch parent companies were combined.
Shell said income attributable to shareholders totalled $5.2 billion (EUR 4.3 billion), up from $3.9 billion in the second quarter of 2004. Meanwhile, upstream production fell slightly by 1.45% to 3.526 million barrels of oil per day equivalent from 3.578 million in the year-ago quarter.
Shell’s chief executive officer Jeroen Van der Veer said the company was maintaining its production forecast of 3.5-3.8 million of barrels of oil per day equivalent for 2005 and 2006. “We expect production for 2005 to be in the lower half of that range, so production so far in 2005 has been better than expected,” he said.
Van der Veer said the company was raising its annual exploration budget to $1.8 billion from $1.5 billion for 2005 and 2006. The company spent $156 million on exploration during the quarter, up from $124 million in the year-ago quarter. Of that, $124 million was spent outside the US, up from $93 million. “We can’t ignore the increase in cost pressures that come with higher oil and gas prices. It affects the industry as a whole,” he said. Drilling rig costs are one such area where higher oil and gas prices have driven demand upward, raising exploration costs.
Exploration and production generated $2.7 billion in earnings during the quarter, up 48% from $1.9 billion one year ago. Shell earned $8.60 per barrel of oil equivalent, up 50% from the previous year. Outside the US, earnings per unit of gas produced rose by 36%. Shell natural gas production rose 1% to 7.9 billion cubic feet per day (bcf/d) (223.9 million cubic metres). Of this, 3.2 bcf/d came from Europe, up from 2.8 bcf one year ago.
Gas and power earnings totalled $11 million, including a net charge of $226 million mainly related to the divestment of power generation assets held by InterGen. Last year the business segment earned $334 million, including an $18 million divestment gain. LNG production rose by 2% to 2.48 million tonnes, with a large boost coming from production on the North West Shelf off Australia. However, the benefit of higher LNG prices and volumes was more than offset by divestment of midstream assets and lower trading and shipping profits. Shell said the LNG business was still seeing returns of over 20%. The company has 11 million tonnes per annum of LNG capacity. “We’re on track to grow that 14% over the 2004 to 2008 period,” Van der Veer said.
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