Shell Tops Targets; Margins, Production Pressured

The steep rise in oil prices helped Europe's largest oil company, Royal Dutch Shell plc, to a better-than-expected 16% rise in profits. Shell's share price was little changed in London trading Thursday, as strong profits were offset by "satisfactory" refining margins, growing costs and lower production. Shell averaged $70.69/barrel during the quarter, versus $65.13 in the prior-year period. That contrasted with a 24% drop in adjusted profit at its refining unit. CEO Jeroen van der Veer believes that, "Given the weaker industry refining margins we have seen in the quarter, these are satisfactory results, underpinned by Shell's operating performance," (full earnings call transcript later today). Net income rose 16% to $6.92 billion, while revenue climbed 8% to $90.7 billion. Excluding certain items, Shell earned $6.13 billion, well above analyst estimates of $5.47 billion in operating income. Production dropped to 3.14 million barrels, a 4% decline from a year ago. Shell CFO Peter Voser said oil prices seemed to be being "driven by speculation" rather than by the current reality of ample global supply. Voser also said Shell is contemplating a project in Iran that would potentially incur U.S. sanctions against the company. The U.N. security council has passed sanctions against Iran for its refusal to cooperate with the its nuclear inspections. Iran's hard-line leader, Mahmoud Ahmadinejad, has repeatedly defied the world community, threatening to destroy Israel, while violently cracking down on opposition groups at home.

Sources: Press release, Wall Street Journal, Bloomberg, Reuters, MarketWatch I, II
Commentary: Royal Dutch Shell: Downstream Benefit • Shell, Saudi JV to Invest $7B on Texas Refinery
Stocks to watch: RDS.A. Competitors: XOM, CVX, BP, TOT. ETFs: OIH
Earnings call transcript: Royal Dutch Shell Q2 2007

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