THE BUSINESS: Going well with Shell as it edges ahead of rival BP: “ROYAL Dutch/Shell is expected to edge ahead of arch-rival BP when both companies announce quarterly profits this week, reminding investors that there is still value in the Anglo-Dutch group, despite a year of crisis.”: "Its shares have lagged behind BP and Exxon Mobil since it wrote down more than a fifth of its proven oil reserves in January." (ShellNews.net)

By Richard Orange

24/25 Oct 04

ROYAL Dutch/Shell is expected to edge ahead of arch-rival BP when both companies announce quarterly profits this week, reminding investors that there is still value in the Anglo-Dutch group, despite a year of crisis.

City of London analysts expect Shell to bring in $4.23bn (£2.3bn, €3.3bn) in net earnings when it reports on Thursday, compared with the $4.18bn average expected by analysts for BP's results two days earlier.

In the third quarter last year, BP had a comfortable lead, earning $2.9bn to Shell's $2.6bn. The catch-up comes despite Deutsche Bank's expectation that Shell's oil and gas output will fall 8% on last year, while BP's will climb 10%.

Citigroup analyst Jon Wright, said: "Volume growth is not necessarily a good indicator for earnings performance. BP has the highest year-on-year volume growth this quarter... yet we are expecting one of the smallest profit increases by the group."

Few analysts expect Shell's numbers to signal a turnaround and the end to its problems. Its shares have lagged behind BP and Exxon Mobil since it wrote down more than a fifth of its proven oil reserves in January.

Andrew Archer at Commerzbank said: "The concerns about fundamentals will override it, so it won't be enough to propel shares forward." Shell's new chief financial officer Peter Voser will face investors for the first time, but the company will provide little new information so soon after last month's strategy meeting and so close to next month's first report on its corporate governance review, which shareholders say has gone to the two boards of directors.

Wright said the decision to swap profitable but declining US and North Sea production in favour of higher growth TNK-BP Russian oil has cut into BP earnings. Russian oil makes up some 24% of BP's production, up from 7% in 2003. Much of this has to be sold inside Russia where prices are lower, while an August increase in Russian oil taxes is biting. Tax changes elsewhere, the impact of high prices on production, maintenance, hurricane damage, currency effects, and variance in different crudes' value, made performance difficult to predict this quarter.