Rising prices score massive profits for oil giants

Two of the world's biggest oil companies posted massive profits yesterday on the back of soaring oil prices, making US$16bn between them in just three months.

At US$6.3bn, Royal Dutch Shell's underlying profits for the three months to the end of June were 36 per cent higher than over the same period last year, despite serious disruption to production in Nigeria.

Meanwhile, Shell's American rival Exxon Mobil, the world's largest oil company, unveiled profits of more than US$10bn over the same three months as it became the first company in US history to record revenues of more than US$1bn a day.

The profits from both companies outstripped even the most optimistic forecasts in the City and on Wall Street.

Shell shares advanced 38 to 1,910p, valuing the company at more than £127bn, as investors applauded its performance.

Shell's earnings, which were equivalent to about US$3m an hour, would have been steeper still had Nigerian militants not attacked oil installations in February.

That, and the production-sharing contracts there that limit the amount of oil to which Shell is entitled as prices rise, cost the company 177,000 barrels a day in Nigeria.

Overall production of oil and gas fell 8 per cent on this time last year to slightly more than 3.25m barrels a day.

The company expects to return to its Nigerian oil fields by the end of the year, but a full resumption of production is unlikely before 2007.

Jeroen van der Veer, Shell's chief executive, said: "We expect to be back in the second half of the year, but we do not think there will be significant production before the year-end.

Some equipment may have disappeared, or there may have been vandalism."An investigation is under way into a separate leak in a Shell pipeline in the Niger Delta that is costing the company a further 180,000 barrels a day in output.

Its protracted problems in Nigeria saw Shell rein back its output target for the year from as many as 3.6bn barrels to 3.4bn.

That, and mounting tension in Middle East, saw the price of a barrel of London Brent crude rise US$1.06 to US$75.06 in late trading.

Oil hit a record high of US$78.40 a barrel earlier this month.

To offset sliding production, Shell is looking to move away from traditional oil and gas projects.

Mr van der Veer revealed yesterday that plans had been approved to build the world's biggest plant to convert gas into cleaner fuels in Qatar.

However, some industry observers are concerned that the cost of the "Pearl project" has spiralled on the back of rising wage bills and steeper prices for raw materials in the Gulf state.

Shell eased concerns over costs by pledging to maintain its capital expenditure plans for this year and next.

The company also made a US$500m provision against legal action in America related to its over-statement of reserves in 2004 - a scandal that claimed the jobs of the then chief executive Sir Philip Watts and the finance director Judi Boynton.

Mr van der Veer disclosed that Shell had embarked on a recruitment drive to attract younger replacements for the significant number of older workers expected to retire soon.

The Anglo-Dutch company hired 2,600 new staff in the first half of this year, which is more than during the whole of 2005.

Speaking about Lord Browne's decision this week to retire as chief executive of Shell's rival BP at the end of 2008 at the age of 60, Mr van der Veer said: "In Shell, there is no mandatory age. The board should take the decision. What's a good age? There's no answer for this."

He was less forthcoming about suggestions that tensions between Lord Browne and BP's chairman, Peter Sutherland, had, in part, been fuelled by a now-abandoned plan by the former for BP to pursue a merger with Shell.

"I don't go there at all," Mr van der Veer said.

"We don't comment on it."

- INDEPENDENT