Booming Shell beats forecasts on two fronts

OIL giant Royal Dutch Shell reported a big jump in quarterly profits yesterday, underlining the vast difference in fortunes between Shell and its troubled arch rival BP.

Shell reported a 34 per cent increase in second-quarter profits to

2.7bn, beating forecasts despite the uncertain economic climate.

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Shell said production rose by five per cent. It has also made better-than-expected progress on its 2.2bn cost-saving plans, which will cut 7,000 jobs.

The forecast-beating results were in sharp contrast to BP, which earlier this week revealed a 20.9bn hit from the Gulf of Mexico oil spill and the first loss in 18 years.

Under chief executive Tony Hayward – who resigned this week – BP had closed the gap on Shell after years of under-performance, before the Deepwater Horizon crisis erupted in April.

Shell, Europe's largest oil company by market value, announced plans to boost asset sales, echoing a strategy announced earlier this week by BP.

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BP needs to sell assets in order to pay costs related to the oil spill, but it also wants to upgrade its portfolio of fields and offer better growth.

Shell expects to sell up to 5.1bn in assets this year as it refocuses its portfolio on projects with higher growth potential.

In a sign that Shell is getting to grips with a seven-year decline in oil and gas production, the company said output rose to an average 3.11 million barrels of oil equivalent per day (boepd) in the quarter, the second consecutive quarter of strong growth.

Jason Kenney, oil analyst at ING, said: "Shell's delivery window is ongoing and 2011 should be a transformational year for operational upside and cash flow."

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Shell's portfolio is becoming increasingly focused on gas, which traditionally has offered weaker returns than crude.

Oil represented around 53 per cent of total production in the quarter, against 59 per cent in the same period last year. The shift was driven partly by a 34 per cent jump in volumes of liquefied natural gas.

Profits were boosted by a benign operating environment.

The price Shell received for its oil rose by 41 per cent in the quarter, compared with the second quarter of 2009, while gas prices rose by 15 per cent.

Refining margins and retail fuel sales also increased.

Shell gave a cautious outlook on the global economic environment and for fuel demand.

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"We continue to see mixed signals in the global economy," said chief executive Peter Voser. "Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure. The outlook remains uncertain."

Shell has started production from its Gbaran-Ubie oil and gas project in Nigeria, which will produce 70,000 barrels of oil a day when fully operational. It has also signed a gas exploration agreement in Qatar.

Profits were helped by higher refining margins, as well as higher oil and gas prices than in 2009, when much of the global economy was still in recession.

Upstream exploration and production profits were up 56 per cent to 2bn, while refining earnings were in the black against a year earlier with profits of 941m.

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Mr Voser said: "We are putting the priority on a sharper delivery of our strategy, aiming for profitable growth and a more competitive performance."

In a separate announcement yesterday, BP announced plans to sell assets in Vietnam, Colombia and Venezuela.

Last week, BP agreed the sale of oil and gas fields to Apache Corp in its first major sell-off.

BP is understood to have hired advisers to sell its stakes in oil fields and gas projects in Colombia and Vietnam. Its aim is to create a leaner company with the potential for higher growth.

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The group is understood to have hired Barclays Capital to sell its Colombian assets.

BP discovered the Colombian fields in the early 1990s. Their production peaked in 1999, at an average rate of 434,000 barrels per day.

Getech improves but not enough

Oil exploration data group Getech said second-half trading continued to recover, but not enough to prevent it falling to a full-year loss.

The Leeds-based company, which supplies complex geological and geophysical data to oil majors including Shell and BP to help to decide where to drill new wells, had been hit by restrained spending among its customers.

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However, Getech said revenue was increasing as spending freed up and it believed the second half of its financial year would show an operating profit.

"However, the loss in the first half year will not be recovered and the year as a whole will still show a deficit," added the company.

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