Royal Dutch Shell, the biggest European energy firm by market value, increased its quarterly profit by 11 per cent, raking in a current cost of supply net income of US$7.7 billion in the first three months of this year.
Much can be attributed to the rise in oil prices. Brent, the benchmark for European crude sales, averaged $118.6 a barrel in the first quarter, an increase of 12.5 per cent on the same period last year.
But the company also had to contend with falling natural gas prices in the United States, a big factor in its financial health because of its strategy to produce more gas than oil by the end of this year.
It has profited from its well-developed liquefied natural gas portfolio, managing to increase its liquefied gas sales to Asia and Europe by 17 per cent.
In the long term, a balanced portfolio will stand Shell in good stead if oil prices retreat from their current levels.
"Clearly, the variable [that] international oil companies have no control over is the oil and gas price," said one energy analyst yesterday. "I would [regard] the current oil price as unsustainable, and what we are getting now as a bonus."
While analysts at Barclays predict that demand for oil will pick up later in the year, countering the current slacking off of demand and an inventory build-up, other analysts predict that Brent will fall back to $90 a barrel by the end of the decade.
Nevertheless, Shell is bullish about the future. It managed to increase production by 1.4 per cent to 3.55 million barrels of oil equivalent per day in the last quarter, and can point to 26 projects it is developing worldwide for future capacity increases.
"This … will drive Shell to the clear targets we have set out for shareholders, namely around $175 [billion]-$200bn of cash flow from operations in total for 2012-15," Peter Vosser, the company's chief executive, said yesterday.
The cash flow can be achieved if oil averages at $80 a barrel, says Shell.
In the near term, the company has raised its target this year for asset sales to $4bn, up from $2bn to $3bn, with the aim of replacing older, more depleted assets with higher-yielding new projects.