Shell 1Q Profit Down 62 Percent To $3.49 Billion

AMSTERDAM — Europe's largest oil company, Royal Dutch Shell PLC, on Wednesday reported a 62 percent drop in first-quarter net profit as oil prices fell sharply amid a global economic downturn.

The net profit figure of $3.49 billion compares with $9.08 billion in the same period a year ago. Sales fell 49 percent to $58.2 billion.

"Conditions deteriorated further in the first quarter of '09 following a downturn across Q4," Chief Financial Officer Peter Voser said on a conference call. Business "has continued to be under pressure so far in the second quarter," he said.

"This is a very difficult condition for the oil industry, and we need to be clear about it."

The company's production arm reported a 67 percent fall in earnings to $1.7 billion. Both oil production and sales prices fell. Its refining arm saw earnings drop to $1.40 billion, down from $2.37 billion a year earlier, which analysts said was better than expected.

Shares rose 1 percent to euro17.41 ($23) in Amsterdam.

Shell said it pumped 3.5 percent fewer barrels of oil, 3.32 million barrels and equivalents per day, due to quota restrictions by OPEC and attacks on its facilities in Nigeria.

Shell's average selling price per barrel in the quarter was $42.16, down from $90.72 a year ago.

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Shell has been investing heavily in new fields after seven years of falling production and an accounting scandal in 2004 that forced it to slash proven reserves. It has promised an average yearly production increase of at least 3 percent through 2012.

The company plans $31 billion in investments in 2009, compared with $20 billion by close rival BP PLC of Britain.

Voser said Wednesday the company has no plans to reduce spending, and Shell now has a total of 1 million barrels per day of oil under development.

"Royal Dutch Shell is still trying to get back on track after its reserve problems and major production declines in 2004," said Peter Hitchens, an analyst at Panmure Gordon & Co. in London, in a note on the earnings.

Hitchens said Shell is "doing the right thing" by investing in new production, but "in the short term the company is vulnerable given its relatively high costs."

One new field that began production in the quarter is a large gas project on Russia's Sakhalin Island expected to eventually deliver 395,000 barrels per day. Voser declined to say how much the field is producing now, but said it would be "well into 2010" before it reaches full capacity.

The company said it planned to pay a dividend of $0.42 per share in the first quarter, an increase of 5 percent.

Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers in London, repeated a "buy" recommendation on shares.

"Production has suffered and will remain under further pressure due to the Nigerian situation," he said, adding that Shell's debt is rising due to the combination of heavy investment and a healthy dividend.

"However, the sustainability of the dividend does not seem to be in question," he said.

He said he expected Shell to cut costs in the coming year and the company "remains extremely cash generative, bolstered by its sheer size and diversity."

Comments

[loki]

Oh my, they are going to need a bail out soon!! Those poor oil companies.

[lmvd3]

Finally!

[lvdragonlady]

Good. Maybe this will bring the gap between us and them a bit closer to equal.

[TxAggie]

Gap between "them" and us? What does that mean. Are you an oil company?

[Bigidea]

Really? How come I am still paying $2dollars for gas? When a barrel of oil was $150, we paid $4 dollars. That’s right, reduce the supply and maintain artificially high prices.

[notAMoron]

The gas tax is a flat tax. In my jurisdiction it is .38/gal.

4 - .38 = 3.62
2 - .38 = 1.62

3.62 / 1.62 = 2.2345679

2.2345679 * 50 = 111.728395

So the price of gas hasn't reduced that much but you also have to keep in mind that for gas stations the profit margin is always razor thin, when gas was at 4/gallon they were sharpening that razor and hoping it didn't slit their wrists, now they are letting it get a little dull so that they can lick their wounds and survive.

You also have to keep in mind that the price of oil, while the largest factor in price of gas is not the only factor. When oil was $15/barrel in the 90s gas was still just a little less than $1 (.62 before tax). So a 10 fold increase from the bottom of the cycle to the top of the cycle in the price of oil only resulted in a 6 fold increase in the wholesale price of gas and a 4 fold increase at the pump.

[Tom95134]

I don't really mind them keeping their earnings but at the same time they shouldn't be using that money to buy up companies developing new technologies just to put them "in the can" so they can continue to make obscene profits on oil. Also, I don't see why these oil companies should be getting all the tax breaks they get, e.g., oil depletion allowances.

[TxAggie]

Tom- Name one oil company merger or purchase where new technologies were kept "in the can". We are talking oil companies here not computers. What is an obscene return on investment? 10% too much- that 's about what the average is. Tax breaks, such as ? THe Oil depletion allowance is only applicable to American Independents as to Domestic production. Shell, Exxon, Chevron, Marathon, Occidental (you get it "Big OIl") are not eligible. The depletion allowance allow low volume, slow producing stripper wells (there are thousands of them) to be economical to produce. Absent this and other tax treatments such wells will be plugged and the DOMESTIC production is lost forever. That means less royalties, less taxes, less jobs and more imported oil. Do you think that would be a good thing?

[TxAggie]

Still watiing on your response, Oil companies buy or merge with other companies for the reserves in the ground. A larger company has economy of scale that comes with size. All companies use the same basic technology, smae folks, same techniques,etc. The difference is oftern the business strategy and the management.

[GerryS]

Too bad--

[LittleMittens]

Really, when was the last time any one of us complained about ONLY making a profit of 3.49 billion?

And just to be fair, how much of that will be going into research for new renewable energy research?

[TxAggie]

Why should one dime go into renewable research? This is an oil company- they find oil and gas, they are good at it. It is Shell's money and up until now, this has been a free (as in "free enterprise") country.

[Savanna]

I have the fiddle out and playing the blues for poor poor Shell. Thank heavens their profit is down and all of us are able to drive again.

[CountryBeforeParty]

Whoa!

I guess we can expect to see layoffs at Shell huh?

[ipv4]

Oh those poor babies they only made 3.4 BILLION DOLLARS WORTH OF PROFIT!

This is an obscene amount of money. Imagine if they put this money into alternative energies.

[atlantajoe]

Why is it up to Shell to spend money on another product. They made this profit from oil and will continue to. Do you tell Burger King they should spend their profit on research for fish farming ? You use caps to show your anger at a company making a 7% return ? Why don't you progressives invent something instead of telling someone else what to do. Maybe we should tell Hollywood that
all of their profits should go to PSA's.

[LittleMittens]

Yes, why should shell be morally responsible for the future of the people they gouge for profiteering. Just because shell purchases new technology and represses it from the market [120 mpg gasoline engine & the water engine] why should we actually hold them accountable. Someday it will be more important to promote what will create a better future for the next seven generations, than what will make the highest profit in the next quarter.

[TxAggie]

Joe- beautiful- someone with some common sense. Is it un American to make a profit and be good at producing a product without at the same time developing something totally foreign to your business model?