Shell shocks the market with profit bonanza

Royal Dutch Shell yesterday announced a 49 per cent surge in first-quarter profits as the energy giant joined rival BP in benefiting from higher oil prices.

The Anglo-Dutch group reported earnings of $4.9bn (3.2bn) for the first three months of the year – a day after BP posted a figure of $5.6bn (3.6bn).

Chief executive Peter Voser said rising energy prices and an improved operational performance meant Shell's profits were sharply higher than the $1.18bn in the final quarter of 2009.

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Shell's performance has lagged behind BP as it has been forced to ramp up spending to secure new sources of oil and gas at a time when refining margins are under pressure owing to global overcapacity and economic weakness.

The company cut 5,000 jobs last year and will remove another 1,000 in 2010 – mainly in downstream and corporate functions – to make it more competitive against its rivals.

Analysts believe the firm has suffered for "taking its foot off the pedal" in exploration in the late 1990s.

Mr Voser, who said the company's results had "improved considerably", claimed the recent turnaround was largely driven by Shell's own actions.

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He added: "The priorities are for a more competitive performance, for growth, and for sharper delivery of strategy. There is more to come from Shell."

Yesterday's results compare with the nadir of the recession in the first quarter of 2009, when crude prices averaged just over $41 a barrel, although a year later this figure stands at an average $76.

Mr Voser said there were mixed signals for the near-term outlook.

"So far, in 2010, oil prices have remained firm, and demand for petrochemicals has increased, but refining margins, oil products demand and spot gas prices all remain under pressure.

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"Although there are signs of an improving economic outlook, we are not relying on it. We are continuing with our focus on cash-flow growth, underpinned by new project start-ups and lower costs," he said.

Shell's operational improvement included a 6 per cent rise in production volumes as it benefited from new upstream projects in Russia and Brazil. Earnings from upstream operations more than doubled to $4.41bn (2.9bn).

Shell restored profitability in its downstream business after losses of $952m in the final quarter of last year. Earnings of $1.33bn (866.8m) were 11 per cent higher than a year earlier as Shell set about implementing its cost-cutting plans.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said yesterday's results were comfortably ahead of forecasts.

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He added: "A rising oil price aside, evidence of group self-help is clearly identifiable, a fact which appears to be moving market consensus opinion from a strong hold to an outright buy."

Broker Prime CFDs repeated its buy rating and said the consensus-beating results reveal a sizeable underestimation by the market of the strength and growth of Shell.

Richard Curr, head of dealing, said: "The fact that the market could underestimate the performance of the oil giant by such a large margin on major metrics suggests a significant positive re-rating is due."