Bloomberg.com: Shell Reports Drop in First-Quarter Earnings as Output Falls

April 29 (Bloomberg) -- Royal Dutch/Shell Group, which faces regulator probes and investor lawsuits after cutting oil and gas reserves three times, said first-quarter profit fell 16 percent from a year ago as output declined.

Net income dropped to $4.43 billion from $5.31 billion a year ago, the company, based in London and The Hague, said in a PRNewswire statement. Profits from asset sales were smaller than in the year-earlier period.

Profit is sliding at Shell after the company in January disclosed it had overstated reserves for more than five years, leading to a U.S. Securities and Exchange Commission investigation and the ouster of Chairman Philip Watts, 58, and oil and gas head Walter van de Vijver, 48. Shell this month published documents showing some former executives knew about inflated reserves almost two years before they were made public.

``When you buy into Shell, it's a belief that there should be light at the end of the tunnel,'' Neil McMahon, an analyst at Sanford C. Bernstein in London, said before today's results.

BP Plc, Europe's largest oil company, on Tuesday reported a 14 percent increase in net income and said it plans to continue buying back shares after spending $1.25 billion on repurchases in the first three months of the year. BP plans to sell shares in petrochemicals operations with a book value of $7 billion.

Rising Oil Prices

Shell has been slower than some oil companies to focus on exploration that offers more production growth. The company failed to find oil or gas in an exploration well off the Norwegian coast, south of Bergen, the Norwegian Petroleum Directorate said yesterday on its Web site.

The cut in Shell's reserves has raised concern about broader writedowns in the industry, and El Paso Corp. of the U.S. later disclosed its own reserve revisions. El Paso shares have dropped 18 percent since announcing the reduction Feb. 17.

Shares of Shell Transport & Trading Co., which represents 40 percent of Royal Dutch/Shell Group, have lost more than 3 percent in London since the first cut in reserves on Jan. 9, compared with a 12 percent rally at BP. Yesterday, Shell shares fell 0.5 percent to 386.75 pence. BP rose 0.6 percent to 494.25 pence.

Oil companies including Shell are benefiting from rising oil prices as OPEC restrains production. U.S. crude oil averaged $35.21 a barrel in the quarter, more than last year's average of $31, itself the highest annual average in two decades.

Shell Chairman Jeroen van der Veer, 56, has said he isn't ruling out resuming stock buybacks. Shell's London shares have a dividend yield of 4.1 percent, more than BP's 3.2 percent.

The Jan. 9 cut in reserves, the result of a review Shell termed ``project Rockford,'' increased concern about growth at Shell's oil and gas unit. Watts had lowered a target to boost oil and gas output in 2001 and Shell missed its goal in 2003.

Two More Cuts

Since then the company has lowered its reserves estimates twice more. On April 19, Shell said it will restate financial statements and planned to amend its 2002 annual SEC filing. The impact of writeoffs and other issues will lower earnings by about $100 million a year from 2000 through 2003, Shell said.

Watts and Van de Vijver left the company last month in connection with the misstated reserves. Watts hasn't commented publicly since he left the company. Shell also replaced Chief Financial Officer Judith Boynton last week. More than 12 shareholder lawsuits have been filed.

Shell lost its top credit ranking April 21 from Moody's Investors Service, the third time its debt rating has been cut. The loss of the AAA rating means there's a greater chance of share buybacks, Citigroup analyst Jon Wright said in a note.

Moody's lowered its ratings for Shell's long-term debt one level to Aa1 from Aaa, the highest possible.

To contact the reporter on this story:

Stephen Voss in London sev@bloomberg.net

To contact the editor of this story:

Tim Coulter at tcoulter@bloomberg.net

Last Updated: April 29, 2004 02:34 EDT 

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