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Profits rise at Shell and Exxon on oil spike

Rowena Mason - The Telegraph

Energy majors Royal Dutch Shell and ExxonMobil saw their profits jump on the back of higher oil prices, but both will be hit by increased North Sea taxes.

Shell's profits jumped more than 40pc to $6.9bn (£4.15bn) in the first quarter on a current cost of supply basis - the company's preferred measure, which strips out inventory changes.

Royal Dutch Shell B

Likewise Exxon saw its earnings soar almost 70pc to $10.7bn over the last three months.

Both companies have benefited from oil prices averaging over $100 per barrel due to fears that tensions in the Middle East could create a supply shock. This is 38pc higher than the price of oil in the same period last year.

Shell also benefited from supplying larger volumes of liquefied natural gas (LNG) to Japan, following the Fukushima earthquake that damaged three of nuclear plants there.

The results of Exxon and Shell contrasted with those of BP, which said on Wednesday that its profits dipped slightly on production down 11pc because of the ban on Gulf of Mexico drilling and a number of sell-offs.

Shell's oil and gas production for the first quarter also fell 3pc compared with the 2010 period, due to asset sales.

However, production from new projects in the three months rose by 230,000 barrels of oil equivalent a day due to an enhanced oil recovery facility in Holland and an LNG plant in Qatar.

Some shine was also taken off Shell's profits by the admission it will have pay $1bn in extra tax liabilities for its North Sea assets.

Chancellor George Osborne imposed a supplementary levy on oil and gas producers in the Budget as a way of recouping some of the profit that energy companies are making from the higher oil prices. The Treasury is increasing tax on fields from 50pc to 62pc and reducing relief on decommissioning old fields from 32pc to 20pc.

Shell did not write any assets down but said new rules on the decommissioning costs of field abandonment rules would lead to a $500m hit, likely to be in the first quarter of 2012.

The tax increase will cost $210m this year and $400m next year, if oil prices remain above $100 per barrel. BP took a $600m hit in its first-quarter results.

Simon Henry, finance director of Shell, said there would be a "significant impact" from the tax increase on North Sea development, with the lives of some fields shortened by one to two years.

"We do try and hold constructive discussions with government on new investment decisions," he added.

Mr Henry said Shell would probably not proceed with several developments that it might otherwise have considered in tight gas and heavy oil.

However, its two biggest projects, Schaeilleon and Clair, where BP is the operator, will probably be given the go-ahead later this year in spite of the tax increase.

The company will pay a first quarter dividend of 42 cents per share on June 27. The shares rose 14 to £23.22½.

Posted Date: 
29 April 2011