Shell reaps restructure reward

Oil giant posts profits higher than expected following overhaul.

Higher output and demand for refined products have helped Royal Dutch Shell top analysts' expectations on its third-quarter earnings.

But the company warned the impact of a ban on deepwater drilling in the Gulf of Mexico would hit its bottom line for at least two years.

Net profit of US$3.46 billion (Dh12.7bn) was up from $3.25bn in the third quarter of last year. Revenues rose to $90.7bn from $75bn, the company said yesterday.

The results show how the company is reaping the rewards of a long restructuring focused on cost efficiency and recovering industrial demand, primarily in Asia.

"Our results have rebounded substantially from year-ago levels, with improved earnings and cash flow, underpinned by a 5 per cent increase in oil and gas production," said the chief executive Peter Voser.

"This is a better performance from Shell, achieved despite continued difficult industry conditions in refining and natural gas markets."

Shell has booked charges of $115 million to date after idling rigs in the Gulf of Mexico and expects further losses in the fourth quarter, the chief financial officer Simon Henry said yesterday.

Daily output from the region, which accounts for about a third of Shell's total production in the Americas, will be 40,000 barrels next year, less than forecast.

"The moratorium and the delay to our drilling programme is an opportunity lost," Mr Henry said.

This month, the US interior department issued new safety regulations and lifted the moratorium put in place after BP's Macondo well disaster.

Shell pumped the equivalent of 230,000 barrels of oil per day (bpd) in the first nine months of the year in the Gulf of Mexico, about 10,000 (bpd) less than would have been the case without the ban.

"There could be a further impact in 2012," Mr Henry said.

Shell is the first of Europe's biggest oil companies to report earnings this quarter. It was followed by Eni, Italy's largest energy producer, which reported a 48 per cent rise in adjusted net income to €1.7bn (Dh8.67bn) due to higher oil prices. Total is due to post results today and BP on November 2.

Shell said stripping out one-off items in both years, earnings would have risen 88 per cent to $4.93bn from $2.62bn. That beat the $4.3bn mean estimate of 18 analysts surveyed by Bloomberg.

Net income rose to $3.46bn from $3.25bn a year earlier, Shell said.

The company produced 3.06 million barrels of oil and equivalents per day (boepd) in the third quarter, up 5 per cent from 2.91 million boepd in the same period a year ago, as the fifth of 13 production projects it plans to open this year and next came on line.

"This is an excellent set of results," said Peter Hutton, the head of research at NCB Stockbrokersin London. "It more than delivers on the expectation of momentum."

Shell is focusing on rock formations in Australia, the US and China, and projects in Qatar.

Third-quarter production rose 5 per cent to 3.058 million boepd from 2.917 million barrels a year earlier.

Liquefied natural gas (LNG) sales volumes increased to 4.26 million tonnes, with Shell citing "major contributions" from the Sakhalin II LNG project in Russia and Nigeria LNG.

Shell's Class A shares traded in London rose 0.9 per cent to 1,994.5 pence yesterday morning. The stock is up 6.3 per cent this year.

Oil futures averaged $76.21 a barrel in the quarter, a 12 per cent increase from the same period last year, and natural gas futures rose 23 per cent.

* with Bloomberg, AP and Dow Jones