THE WALL STREET JOURNAL: Shell Unveils Record 04 Pft But Cuts Reserves: “Royal Dutch/Shell Group Thursday reported the largest-ever U.K. corporate profit thanks to high oil prices, but also announced a new, sharp cut in its oil and gas reserves.” (ShellNews.net) Posted 4 Feb 05
By Benoit Faucon
Of DOW JONES NEWSWIRES
LONDON -- Royal Dutch/Shell Group (RD,SC) Thursday reported the largest-ever U.K. corporate profit thanks to high oil prices, but also announced a new, sharp cut in its oil and gas reserves.
Chief Executive Jeroen van der Veer said 2004 was "a year of extremes, with the reserves re-categorization on the one hand, and record net income and cash generation on the other."
The Anglo-Dutch oil major reported net profit for last year of $18.536 billion, up 48% from $12.496 billion the previous year.
For the three months to Dec. 31, the world's third-biggest listed oil company by production said its net income stood at $4.478 billion, up 134% from a year ago.
The net profit dwarfs the previous record by U.K. banking giant HSBC Holding PLC (HBC), which reported a pretax profit of GBP7.7 billion, or $14.5 billion, for 2003.
As a result, Shell said it now expects payment of at least $10 billion in dividends in 2005.
But the mammoth profit sparked indignation in certain quarters, with the general secretary of the transport and general workers union, Tony Woodley labeling it "obscene" and calling for a special "windfall" tax on oil companies.
Shell's executive director for exploration and production, Malcolm Brinded, hinted however that such a tax could have a negative impact on its U.K. business.
Most oil majors, meanwhile, have posted or are expected to post record profits this year, reaping the fruits of high crude prices on the back of instability in the Middle East and surging Chinese demand.
North Sea Brent crude, the most widely used benchmark, averaged $38 a barrel for 2004, but rose to $44 a barrel in the second half.
Analysts expect Shell 's arch-rival BP PLC (BP.LN) to post a $16.565 billion annual profit Tuesday.
Monday, ExxonMobil Corp. (XOM), the world's largest listed oil company, reported a net income in 2004 of $25.3 billion. Overall, annual earnings per share at super-majors rose 63% in 2004, according to estimates by CSFB.
Shell said production of oil and natural gas, the cornerstone of its earnings, was 3.8 million barrels of oil equivalent in 2004, against 3.9 million BOE in 2003, nearly in line with its guidance of a flat number.
Adjusted earnings on a current cost of supplies basis - the market's preferred earnings measurement which strips out the fluctuating value of the company's hydrocarbons inventories - was $5.13 billion in the quarter, compared with $1.86 billion from the same period a year ago.
Shell , which is currently merging its Dutch and British parent holdings, uses U.S. Generally Accepted Accounting Principles.
The company also said it is increasing the value of its divestment program to up to $15 billion from $12 billion as it expects to fetch higher prices for its assets. The strong results were undermined by the unveiling of a new cut in its proven reserves, amounting to 9% or 1.4 billion BOE. Last year, Shell cut 4.47 billion BOE from its assets, a 23% cut that caused shareholder revolt and the departure of CEO Philip Watts.
Shell said it has now completed the audit of its reserves for 2003 and earlier, which now stands at 12.95 billion BOE.
Investec analyst Bruce Evers said he was disappointed by the extent of reserves cuts, adding it was 500 million barrels more than the downgrade he expected.
Concerns over the reserves sent the stock down through the day. Around 1600 GMT, the shares of Shell Transport & Trading PLC - a 40% component of Royal Dutch/Shell - were down 2.2% at 469.5 pence.
Brinded said, however, that the cuts don't imply "any change in future production expectations." For instance, the large Bonga gas project in Nigeria is still expected to start in July.
Shell also said its reserves replacement ratio for hydrocarbon production -a key indicator of oil companies future growth - is expected to be in the range of 45-55% for 2004 - and 15-25% if pricing at the end of 2004 and divestments are included.
CSFB said the ratio implies a "dangerously low" reserve life of nine years.
Last year, Shell replaced 98% of reserves for 2003, though this included a rebooking of some reserves that had been downgraded earlier.
Shell now pledges to reach a 100% replacement ratio by 2008.
Evers of Investec said there is now a question mark over whether Shell can hit a 100% replacement ratio by rebooking some reserves that it has already cut or through genuine organic growth.
Brinded said he expects the majority of cut reserves to be reintegrated at some point in the future. However, given the disappointing results on the reserves, the challenge to reach the 100% replacement target has increased, he said.
Company Web site: http://www.shell.com
-By Benoit Faucon, Dow Jones Newswires, +44-20-7842-9386; benoit.faucon@dowjones.com