Shell Q3 Underlying Profit Beats Forecasts

Posted 26 October 2006 @ 11:53 am EET     Print     Reprint     E-Mail     Comments

LONDON (Reuters) - Royal Dutch Shell (RDSa.L) beat forecasts with a 21 percent rise in underlying third-quarter profit thanks to high oil prices, but the oil major's headline earnings fell as the corresponding period last year benefited from gains on asset sales.

Shell's London-listed A shares rose 3 percent to trade at 1,842 pence at 0747 GMT, outperforming a 1 percent rise in the DJ Stoxx European oil and gas sector index.

Shell said in a statement on Thursday that third-quarter current cost of supply (CCS) net profit, which strips out changes in the value of inventories, was $6.9 billion.

This was down 4 percent on the same period of 2005 when divestment gains added $1.7 billion to the result.

Excluding inventory losses and non-operating items such as asset sales and deferred taxes, net profit was $7 billion. A Reuters poll of 11 analysts gave an average forecast of $5.7 billion, with the highest at $6 billion.

The earnings surprise suggests Shell is starting to turn the corner after investor confidence was knocked by massive oil and gas reserves downgrades in 2004 and huge cost overruns on key projects in 2005, analysts said.

"Our forward forecasts are under review and likely to be increased. Our recommendation remains an 'Add'," said Brendan Wilders, analyst at Oriel Securities. Profit was helped by oil prices, which hit a record average high in the third quarter, but production also beat expectations.

Shell managed to hold oil and gas output steady at 3.25 million barrels of oil equivalent per day (boepd) in the quarter, despite losing 185,000 boepd to civil strife in the Niger delta. Analysts had forecast 3.146 million boepd.

Refining profits also came in much stronger than expected, rising around 25 percent, excluding inventory gains, despite lower margins.

Chief Executive Jeroen van der Veer said in a statement that the company had also managed to keep a tight rein on costs, an area of concern for investors.

Shell reassured those who feared costs at its largest project at Sakhalin Island in East Russia were rising yet again, after a doubling of its cost estimate last year to $20 billion. It said the project budget of $20 billion figure still stood.

Many industry figures had thought a $22 billion figure was now more likely, while some reports said costs had spiraled to $28 billion.