BLOOMBERG: Shell Profit Surges to Record for the Oil Industry: ``Shell is lagging behind BP in terms of new exploration, in terms of new finds and that's why they need to up the ante in terms of increased production,'': Thursday 27 October 2005

By Stephen Voss and Mathew Carr

Oct. 27 (Bloomberg) -- Royal Dutch Shell Plc reported a third-quarter profit of $9 billion, a record for the oil industry, because of a pipeline sale and surging energy prices.

The result included a gain of $1.77 billion from the natural- gas network sale. Chief Executive Jeroen van der Veer today said new projects are about to start in Oman and Nigeria and Shell's drilling for new fields has been encouraging, after the company last year admitted lying about its reserves. The revelation led to the downfall of his predecessor, investor lawsuits and fines.

``The results are great but the key thing is the stability of the strategy,'' said Yoon-Chou Chong, the head of European equities at Aberdeen Asset Management, who manages $6.5 billion, including Shell shares. ``We've been one of the keener supporters of Shell through the crisis,'' he said. ``There are still a lot of reluctant investors out there I'm sure.''

Net income at Europe's second-largest oil company equaled $1.35 a share. A year earlier the company had a profit of $5.37 billion, or 79 cents a share, Shell said today in a statement from The Hague. The shares rose as much as 1.9 percent in London as most other oil stocks fell.

Oil prices peaked at $70.85 a barrel in New York and natural gas set a record after Hurricane Katrina at the end of August, boosting earnings across the industry. Exxon Mobil Corp., which reports profit later today, had its record profit of $8.42 billion in the fourth quarter of last year.

Shell was the hardest-hit oil company by Katrina and another U.S. hurricane last month, Rita. The Mars offshore platform, which pumped about 5 percent of its oil, will stay shut for at least eight more months of repairs, the company said today.

Beating Estimates

Before gains from the gas pipeline sale, other one-time items and gains from holding inventories, profit was $5.8 billion, surpassing the median analyst estimate of $5.4 billion in a Bloomberg survey.

``We captured the benefit of high oil and gas prices and refinery margins, even after the impact of hurricanes in the U.S.,'' Van der Veer said during a conference call with reporters.

Shell class B shares in London rose as much as 33 pence, or 1.9 percent, to 1,810 pence, trading at 1,801 pence at 11:47 a.m. local time. They have gained 16 percent this year, compared with a 21 percent increase at BP Plc and 10 percent at Exxon.

Double GE Earnings

Shell's third-quarter net income was about twice that of General Electric Co., the world's biggest company by market value. Shell is the sixth-biggest by value.

The biggest quarterly profit is from MediaOne Group Inc. In the second quarter of 1998, the U.S. cable company had quarterly earnings of $26.6 billion, which included a one-time gain of $24.5 billion for the company's separation from the former U.S. West Media Group, public filings show.

The world's five biggest oil companies may report combined net income of $26 billion for the third quarter, up 23 percent from a year earlier, Credit Suisse First Boston said earlier this month. That's equal to the economic output of Hungary. The five companies are Shell, Exxon Mobil, London-based BP, Total SA of Paris and Chevron Corp.

BP, Europe's largest oil company, two days ago reported that its net income in the third quarter jumped to $6.53 billion from $4.87 billion, boosted by a gain of $2.05 billion in the value of its oil inventories.

``Shell is lagging behind BP in terms of new exploration, in terms of new finds and that's why they need to up the ante in terms of increased production,'' said Bob Parker, deputy chairman of Credit Suisse Asset Management in London, which oversees the equivalent of $335 billion. Shell ``may have to do another acquisition,'' possibly in Canada, Parker said.

Spending Plans

Shell repeated that capital investment in 2005 will be about $15 billion excluding its Sakhalin project and said it plans to give a forecast for next year in December.

Oil and gas production and refinery output has yet to recover from the storms. U.S. oil output in the Gulf is about 69 percent lower than normal, while natural gas supply is down by 56 percent, according to government estimates. Some 6 percent of U.S. refining capacity remains off line.

Shell's Port Arthur, Texas, refinery, which shut before Hurricane Rita came ashore on Sept. 24, is among the last few to restart. The 275,000 barrel-a-day refinery, which is operated by a Shell joint venture, is expected to be ``back on line shortly,'' Shell said today in the statement.

Hurricane Costs

Shell's biggest loss is its Mars platform, which pumps about 140,000 barrels a day, worth some $8 million a day. The field, in which BP is a minority shareholder, may resume production in the second half of next year, Shell said today.

The hurricane costs after tax in Shell's production unit would amount to about $350 million ``over the period 2005 to 2006,'' a ``significant portion'' of which may be recovered from insurers, Shell said today.

Projects outside the U.S. will soon help bolster production. Shell's liquefied natural gas ventures in Oman and Nigeria are both scheduled to starting pumping this quarter, while the Bonga oil field in Nigeria will also come on line, before reaching output of 200,000 barrels a day next year.

Exploration Division

Shell's exploration and production division, its biggest unit, earned $5 billion in the quarter, more than double the $2.3 billion a year earlier, according to the statement.

The company produced 3.2 million barrels of oil equivalent a day in the quarter, down 11 percent from a year earlier, after the loss of 160,000 barrels a day on average because of the hurricanes. During the past quarter Shell drilled 15 successful exploration and appraisal wells around the world, and so far this year has had a success rate of 72 percent.

``Our focused exploration strategy is working,'' Van der Veer said.

Profit at the company's oil-products division rose 13 percent to $1.7 billion as it struggled to raise prices at service stations as fast as wholesale prices rose.

The gas and power unit, which includes some liquefied natural gas operations, earned $556 million, up 57 percent. Profit at Shell's chemical unit fell 44 percent to $321 million after $184 million of charges, mainly related to exchange-rate movements when it settled the sale of its Basell joint venture unit.

Shell's $9.03 billion net income figure includes gains attributable to increases in the value of oil inventories because of higher prices. Excluding the effect of inventories, quarterly profit was $7.37 billion, also up 68 percent from a year earlier.

To contact the reporter on this story:

Stephen Voss in London sev@bloomberg.net

Mathew Carr in London at m.carr@bloomberg.net 

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