Shell Posts Fall in Profits Despite Record Oil Prices

By MARK WILLIAMSON

ROYAL Dutch Shell said profits fell in the third quarter despite a fresh surge in oil prices, which yesterday hit a record high that a company director said had been driven by speculation.

Following a fall in production, the big oil and gas group said its current cost of supply net profit – excluding changes in the value of fuel stocks – slipped by l 8per cent to dollars6.4bn (GBP3.1bn), in the three months to September, compared with the same period last year.

The drop was recorded in a quarter when the price that Shell received for Brent crude oil rose 7per cent compared with the third quarter of 2006, amid strong global demand and geopolitical uncertainty.

News of the earnings reverse came on a day when Brent hit a new all-time high of dollars87.48 per barrel after a fall in stocks of crude in the US heightened fears that supplies might be tight during the winter.

However, Peter Voser, chief financial officer of Shell, said the price rise was at least partly being driven by speculators.

“The price seems to be driven by some speculation and also has political premium in it, rather than actually some of the fundamental drivers, ” he stated.

“We find it hard to explain the current prices because at the end of the day you do not see anyone queueing for fuels and nor are there any physical shortages.”

Voser’s comments appear to provide support for the claims of the Organisation of the Petroleum Exporting Countries that the surge in oil prices may have been driven by speculative trading rather than shortages.

While the organisation has sanctioned an increase in daily production of 500,000 barrels from next month, such arguments reinforce the hand of Opec members opposed to taking more dramatic action.

The US Energy Information Administration says the market is tight and wants Opec to do more to ease pressure on supplies.

Assaults by Turkish troops on on Kurdish separatists in northern Iraq have added to tensions in the Middle East, where almost a third of the world’s oil is produced.

Shell said third-quarter production fell 4per cent on the same period last year, to 3.137 billion barrels oil equivalent daily.

Production was hit by the sale last year of half Shell’s stake in the giant Sakhalin-2 project in Siberia to Gazprom, the Russian state-controlled petroleum company, following intense pressure from authorities in Moscow.

While Shell has been investing heavily in new “legacy projects” in areas like Asia-Pacific, production from new developments did not fully compensate for declining output from mature areas.

The company said it would continue to actively manage its portfolio in pursuit of its strategy of “more upstream, profitable downstream”.

There was no update on the sale of a big portfolio of North Sea assets that was announced in June.

Earnings were also hit by increased costs and a decline in refining margins. Excluding the effects of one-off tax payments, underlying earnings fell 13per cent to GBP3bn, ahead of analysts’ forecasts.

“Make no mistake, Shell remains in the earnings sweetspot, ” wrote Citigroup analyst James Neale in a note.

Shell’s London-listed ‘A’ shares closed up 11p at GBP20.67.

Cairn Energy’s Indian subsidiary posted a consolidated net profit for the quarter to September of Rupees 232m (GBP3m) compared to a loss of GBP8.4m in the second quarter. Chief executive Rahul Dhir said Cairn India continued to focus its efforts on developing giant finds made in Rajasthan province.

He reiterated predictions that first oil production from the Mangala discovery was on schedule for 2009. Cairn Energy retained a 69per cent stake in Cairn India after floating the business on exchanges in that country.

Originally published by Newsquest Media Group.

(c) 2007 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.