Lloyds List: Record Shell profits soured by new reserve cuts: “The Anglo-Dutch oil major said it would pay up to $10bn to shareholders in dividends and has relaunched a $3bn-$5bn share buy-back programme. But it has again restated booked hydrocarbon reserves for 2003 by 1.4bn barrels of oil equivalent, down to 12.95bn boe, after completing an internal audit.” (ShellNews.net) 4 Feb 05

Oil price surge and firm refining margins yield $18.5bn, writes Martyn Wingrove

Feb 04, 2005

ROYAL Dutch'Shell has reported the largest profits ever for a UK company, with a record net income of $18.5bn exceeding analysts' expectations, on the back of surging oil prices and strong refining margins.

The Anglo-Dutch oil major said it would pay up to $10bn to shareholders in dividends and has relaunched a $3bn-$5bn share buy-back programme.

But it has again restated booked hydrocarbon reserves for 2003 by 1.4bn barrels of oil equivalent, down to 12.95bn boe, after completing an internal audit.

'2004 was a year of extremes with the reserves recategorisation on the one hand and record net income on the other,' said group chief executive Jeroen van der Veer.

'We have taken the steps necessary to close out the reserve issue, made substantial improvements to our portfolio and are reshaping the organisation.'

Shell's oil and gas production was in line with expectations, but at the higher end of the company's target range at 3.77m barrels per day, as new fields were started in the Gulf of Mexico, Russia and the North Sea.

Its overall earnings were up 48% from 2003 at $18.5bn, powered by a doubling in oil product earnings reflecting higher refining margins and stronger fuel sales, plus a $7.6bn gain from total group divestments.

Upstream earnings were only 6% higher to $9.66bn, while gas and power earnings were flat, despite a 9% climb in liquefied natural gas volumes to 10.1m tonnes and improved prices.

'Exploration and production had robust results with our Nigerian production of 1m bpd, its highest since 1980,' said Mr van der Veer.

'We also had record downstream earnings of $7.5bn, up 154%.

'It was another successful year for gas and power with 9% growth in LNG volumes with start-up of the fourth train on the North West Shelf project in Western Australia, Malaysia Tiga volumes ramp-up and a full year of Nigerian LNG train 4 volumes.'

Shell forecasts LNG volumes will double over the next five years, with the start-up of three more trains in Nigeria, plus the first train in Sakhalin and a third train in Oman.

The group expects to invest around $15bn this year, with more than $12bn on upstream projects, which are set to drive the company's production forward.

Shell's chief financial officer Peter Voser expected the group's divestments in all divisions over the 2004-06 period to total $15bn, up from a previous forecast of $10bn.

Malcolm Brinded, executive director for exploration and production, expects production levels to remain within the 3.5m bpd-3.8m bpd range to 2008, but admitted this year's output levels will be at the low end.

'Our E'P business is at a turning point this year and we will be putting it back on track for strong growth in the future,' he said during the results presentation.

'We expect to put projects into production to unlock 13bn boe of resources over the next five years.'

The next major project to start production for Shell should include the long delayed Bonga deepwater development offshore Nigeria by July this year.

This could be followed by Erha also off Nigeria, Ormen Lange in Norway, Sakhalin, Gorgon in Australia, Corrib off Ireland, Kashagan in Kazakhstan and Pohokura in New Zealand.

Last year, Shell made five large discoveries including three in Nigeria, one offshore Egypt and one in Malaysia.

It may also be on to a large discovery in the Norwegian Sea this month.