Big prices for oil, record 2Q profits at Shell

[July 31, 2008]  AMSTERDAM, Netherlands (AP) -- Royal Dutch Shell PLC reported a 33 percent jump in second-quarter profits Thursday, its biggest quarter ever at $11.6 billion thanks to high oil prices and the weak dollar.

The company earned $8.67 billion in the same quarter last year.

Shell said its selling price per barrel of oil was around $112, up from $64 a year earlier. That pushed earnings at its main exploration and production arm up 90 percent to $5.88 billion, despite a 1.1 percent fall in production to 3.05 million barrels of oil and equivalents per day.

Chief Executive Jeroen van der Veer dismissed calls in Britain for a windfall tax on oil companies.

Britain's BP PLC reported this week that its profits jumped 28 percent to $9.47 billion in the quarter.

"If we do less investment there will be less supply for consumers" which would drive prices higher, Van der Veer said.

"The world needs energy."

He said the company was reinvesting profits and now expects capital spending of between $35 billion and $36 billion this year, up from the last previous estimate of $24 billion to $25 billion. That figure includes the company's $5.8 billion bid for Canada's Duvernay Oil Corp., launched earlier this month.

He said Shell was benefited from a strong operating performance as well as high energy prices, but said refining margins had weakened.

Refining profits rose 16 percent to $4.54 billion, but Shell said at the current cost of supplies -- which strips out the impact of oil prices -- refining earnings would have fallen by 63 percent to $1.08 billion, mostly due to weaker margins in the United States.

The company's net sales were $131 billion in the quarter, up from $84.9 billion.

The strong quarterly results had been widely expected and shares rose 1.2 percent to 23.63 euros ($36.77).

Petercam analyst Alexandre Weinberg repeated his "buy" recommendation, saying the company has been undervalued since 2004 when it was forced to restate its proven oil reserves in a major accounting scandal.

"Though the sentiment toward the majors (major oil companies) has weakened in the past weeks due to the oil price decline, we believe that Royal Dutch Shell will continue to generate massive cash flows," he wrote in a note on the earnings.

"The following 18 months should see significant production capacity increase," he said, citing a large project on Sakhalin island in Russia expected to begin production at the end of the year.

"The company still trades at a discount to its peers and we deem this unjustified."

There are some problems ahead for Shell, however.

In Nigeria's oil-rich delta region, the company had nearly 200,000 barrels per day of oil shut down during the quarter due to attacks by armed militias. The militias seek a share of oil profits now controlled by the national government.

Shell has been investing in deep-sea oil platforms in Nigeria to minimize the risk, but in June, its Bonga platform 75 miles from the coast was shut down briefly after an attack there.

"We had always right or wrongly thought that being that far away, an attack would be relatively unlikely," Van der Veer said.

"We will think through how we can better protect our facilities, I don't think we should publicize what we (plan to) do."

[Associated Press; By TOBY STERLING]

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