Another day, another forecast-busting set of results from an oil giant. Today it’s the turn of Shell, which reported that profits jumped 49% to $4.9bn in the past three months – comfortably ahead of the expected $4.2bn. The leap in profits is obviously thanks in no small part to increased oil prices. But chief executive Peter Voser was also keen to take some credit, saying that the turnaround in the first quarter was ‘driven largely by our own actions’. And while its Q1 profits weren’t quite as impressive as those of rival BP, we suspect Voser doesn’t really envy BP counterpart Tony Hayward's lot at the moment...
As with BP, Shell’s upstream business was the star performer: earnings doubled to $4.4bn, up from $2.2bn in the same period last year. This was largely due to a surprise 6% increase in production: Shell is now getting the equivalent of 3.59m barrels of oil out of the ground per day, despite analysts predicting that output would be flat. For an oil company, that’s about the best news you can have. But while a near-50% growth in profits is obviously not to be sniffed at, Shell does have to suffer from the inevitable comparisons with BP, which yesterday revealed a whopping 135% increase in profits, to $5.6bn. So why hasn’t Shell done as well?
One reason is that it’s much more exposed to the gas market, which hasn’t fared quite so well as oil over recent months. It’s also had internal problems to deal with: after some weak recent results (particularly in the last quarter of 2009, where profits dropped 75% to $1.2bn), Voser has been on an aggressive cost-cutting drive. He’s already slashed 5,000 jobs since taking over in the middle of last year, with another 1,000 to go in 2010. Not much fun for Shell’s management (who have suffered the most), but shareholders (who get a divi of 42c a share, incidentally) will argue that it’s had the desired effect on the bottom line.
Equally, Shell probably has less to worry about than BP at the moment, given the recent events in the Gulf of Mexico. Shell is currently digging more oil out of the ground than its rival (at least until BP’s investments in the Norwegian continental shelf start to bear fruit), which bodes well in the short-term. The ramifications of the spill will be felt throughout the oil industry, but obviously the main damage – in cost and reputational terms – will be to BP. And with Voser planning another $1bn of cost-cuts, Shell is certainly looking a lot leaner and meaner than it did a year ago.
In today's bulletin:
Politicians deny misleading us over deficit - as Greece slips again
Shell profits rise by 50% as cost-cutting begins to pay off
Our clients can look after themselves, Goldman insists
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