Shell delays Alaska offshore exploration, reports profits tripling

AMSTERDAM - Royal Dutch Shell PLC, Europe's largest oil company, on Thursday reported that fourth quarter profit more than tripled from a year earlier as oil prices rose and the company boosted production.

In addition, Shell's refining operations reversed losses from a year earlier to make a healthy profit, though not as much as analysts had expected.

Shell confirmed it has pushed back any plans to drill offshore in Alaska until after 2011.

Shell has invested $3.5 billion in concessions in the Beaufort and Chukchi seas, but scaled back drilling plans after the BP Gulf Coast disaster.

In October it said was seeking approval for a single exploratory well in shallow water in the Beaufort Sea off Alaska's north coast.

The idea was opposed by environmental groups and the U.S. Environmental Appeals Board ruled in late December analyses of the possible impact from nitrogen dioxide emissions were not thorough enough.

"We're missing one permit but that actually means we've got the other 34 permits," Chief Financial Officer Simon Henry said.

But Chief Executive Officer Peter Voser said Shell was unwilling to invest up to $150 million for drilling preparations until it is more likely the project will be approved.

Shell's fourth quarter net profit was $6.79 billion, up from $1.96 billion in the same period a year earlier. The figure included net one-time gains of $1.59 billion, notably from the sale of shares in Australia's Woodside Petroleum, compared with net charges of $1.60 billion in the same period a year earlier due to restructuring at Shell's refining operations.

Revenue rose 24 percent to $100 billion. Production was up 5.3 percent to 3.5 million of barrels of oil per day, reflecting heavy investment in new capacity Shell has made in recent years, while global oil prices were 15 percent higher on average.

Shell's shares fell 2.7 percent to €25.875 in early Amsterdam trading.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers in London, said investors were disappointed by margins at Shell's refining arm and were taking profits after a 27 percent run up in the company's share price over the past year.

"Even so, net income was well above expectations and a significant improvement on the previous year," he said in a note on the earnings.

"Higher oil prices inevitably provided a tailwind, but the production story is central."

At current rates, the company has met a goal of increasing production by 11 percent from 2009 full year levels of 3.15 million barrels per day, though it typically produces more in the fourth quarter due to cold weather. CEO Voser said "there is more to come from Shell" and repeated the company will increase cash-flow by at least 50 percent from $24 billion in 2009 to $36 billion in 2012.

"These are ambitious targets, but we are on track," Voser said. He noted the fourth quarter results were "impacted by weak refining margins (and) pressure on certain regional natural gas prices."

Shell said it plans at least $25 billion in capital expenditures this year and kept its dividend flat at $0.42 per share.

"It's difficult to increase the dividend until the cashflow will allow us to do so," said CFO Henry on a conference call.

At Shell's production arm, earnings rose to $5.10 billion from $2.54 billion a year earlier. Those earnings included the large gain from Woodside. Shell said the 5.3 percent production increase was helped by a 115,000 barrel per day increase in output in Nigeria, though new projects in Qatar and Russia also contributed.

"I think we are all pleased to see Nigeria has increased their production as it will help to get funds into the Nigerian economy," Voser said on the call.

He praised Nigerian president Goodluck Jonathan as "supportive of foreign investment."

Asked about claims against Shell being heard in Dutch court for Nigerian spills, Voser said the spills were mostly caused by sabotage.

"I think Shell has operated according to its worldwide standards in Nigeria," Voser said. "We will defend ourselves very rigorously."

Shell didn't benefit from high oil prices in the fourth quarter as much as rivals BP PLC and ExxonMobil Corp. because around half of Shell's production is in the form of natural gas, whose prices have risen less than oil.

Asked whether Shell's exposure to gas is hurting the company, Henry said it is in the company's best long-term interests since it is cheaper to develop than oil and emits less carbon dioxide.

"Gas, as a preferred fuel for the future, is beginning to be appreciated by those who set policy," he said.

"If you look out to the Asia Pacific market, which is the most active and where most of our growth is focused, the governments there do have energy policies, which - for example in China - will at least double, more likely treble gas consumption in the next decade."

He also cited India, China, Japan, Korea, Taiwan, Singapore, Philippines, Malaysia, Indonesia, and Vietnam as "all putting gas at the top of their agenda for strategic and cost reasons."

"That's why we are confident in our position and gas strategy," he said.

Shell's downstream arm - which includes refining and sales of chemicals and oil products - made a profit of $411 million versus a loss of $1.76 billion in the fourth quarter of 2009 due to the restructuring charges. The arm this quarter had "higher realized refining margins globally, higher refinery plant intake volumes and lower operating expenses," Shell said.

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