Shell 1Q profit down 62 percent to $3.49 billion

[March 19, 2010]  AMSTERDAM (AP) -- Europe's largest oil company, Royal Dutch Shell PLC, on Wednesday reported a 62 percent drop in first-quarter net profit as oil prices fell sharply amid a global economic downturn.

The net profit figure of $3.49 billion compares with $9.08 billion in the same period a year ago. Sales fell 49 percent to $58.2 billion.

"Conditions deteriorated further in the first quarter of '09 following a downturn across Q4," Chief Financial Officer Peter Voser said on a conference call. Business "has continued to be under pressure so far in the second quarter," he said.

"This is a very difficult condition for the oil industry, and we need to be clear about it."

The company's production arm reported a 67 percent fall in earnings to $1.7 billion. Both oil production and sales prices fell. Its refining arm saw earnings drop to $1.40 billion, down from $2.37 billion a year earlier, which analysts said was better than expected.

Shares rose 0.2 percent to euro17.285 in Amsterdam.

Shell said it pumped 3.5 percent fewer barrels of oil, 3.32 million barrels and equivalents per day, due to quota restrictions by OPEC and attacks on its facilities in Nigeria.

Shell's average selling price per barrel in the quarter was $42.16, down from $90.72 a year ago.

Shell has been investing heavily in new fields after seven years of falling production and an accounting scandal in 2004 that forced it to slash proven reserves. It has promised an average yearly production increase of at least 3 percent through 2012.

The company plans $31 billion in investments in 2009, compared with $20 billion by close rival BP PLC of Britain.

Voser said Wednesday the company has no plans to reduce spending, and Shell now has a total of 1 million barrels per day of oil under development.

"Royal Dutch Shell is still trying to get back on track after its reserve problems and major production declines in 2004," said Peter Hitchens, an analyst at Panmure Gordon & Co. in London, in a note on the earnings.

Hitchens said Shell is "doing the right thing" by investing in new production, but "in the short term the company is vulnerable given its relatively high costs."

One new field that began production in the quarter is a large gas project on Russia's Sakhalin Island expected to eventually deliver 395,000 barrels per day. Voser declined to say how much the field is producing now, but said it would be "well into 2010" before it reaches full capacity.

The company said it planned to pay a dividend of $0.42 per share in the first quarter, an increase of 5 percent.

Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers in London, repeated a "buy" recommendation on shares.

"Production has suffered and will remain under further pressure due to the Nigerian situation," he said, adding that Shell's debt is rising due to the combination of heavy investment and a healthy dividend.

"However, the sustainability of the dividend does not seem to be in question," he said.

He said he expected Shell to cut costs in the coming year and the company "remains extremely cash generative, bolstered by its sheer size and diversity."

[Associated Press; By TOBY STERLING]

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