Shell sees profits leap but worries analysts

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OIL giant Royal Dutch Shell reported a 54 per cent increase in profits to £18.1bn in 2011, although the results were marred by a disappointing performance in the final quarter of the year.

The last three months of 2011 were hit by a squeeze on refining margins and lower American natural gas prices.

Shell still made profits of £4.1bn in the fourth quarter, which represented a 13 per cent rise on a year ago, after crude oil prices remained close to the 100 US dollars a barrel mark.

Shell has outshone its troubled rival BP in recent years and yesterday it underlined its confidence by promising dividend growth for the first time since 2009.

But analysts at Investec said they were concerned about Shell’s ever-rising investment expenditure, which they feared meant the company was spending “more for less”.

“We expect to see material downgrades to the consensus for full year 2012/13 earnings numbers,” they wrote in a research note.

Analysts at Citigroup said the company needs to convince investors it can invest money more profitably than rivals to justify the outperformance in its shares compared with rivals in the past 18 months.

“The new medium-term strategy unveiled today fails to offer that differentiated story,” they said.

Shell said its three-year strategic plan, which was first outlined in early 2010, had built the foundations for growth through a company-wide restructuring and by refocusing its efforts on emerging growth markets.

The company, which saw production decline three per cent last year, is planning investment in major projects worth £19bn in 2012 and said its outlook was boosted by more than 60 new projects and options.

There will also be £3.8bn of investment in Shell’s “heartlands” during this year, including extending the life of its operations in the UK North Sea and South East Asia.

Chief executive Peter Voser said: “Shell’s strategy is innovative and competitive. Our improving financial position creates an opportunity to increase both our dividends and investment levels.”

He said the planned return to dividend growth in 2012 showed the company’s confidence that “there is more to come from Shell”.

His comments come a month after Shell angered unions when it scrapped its final salary pension scheme for new recruits, meaning that not a single employer in the FTSE 100 Index offers the retirement package. Unite general secretary Len McCluskey said: “Shell reminds us of the moral bankruptcy of the corporate elite. The company is needlessly closing its final salary scheme while posting colossal profits.

“This is predatory capitalism in action. Shell is one of the world’s richest and most powerful corporations. It can afford to keep the final salary scheme open to new entrants.”

Shell’s planned return to strong production growth follows a long fallow period. Apart from a five per cent rise in 2010, the group’s production has fallen every year since 2002.

The company said that oil & gas production should average some four million boe/d (barrels of oil equivalent per day) in 2017-18.

Production averaged 3.215 million boe/d in 2011, a three per cent drop on 2010.

Analysts had previously predicted that capex would fall, as Shell completed big new projects such as the pearl gas-to-liquids plant in Qatar, which will push output higher.