Royal Dutch Shell Misses Estimates

Earnings are enormous, but second-quarter production disappoints.
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The world's No. 3 oil producer,

Royal Dutch Shell


, said its second-quarter earnings surged 26% on high energy prices. The results fell short of analysts' expectations, as production volume disappointed.

The company's oil exploration and production segment led the increase in earnings, mainly due to higher prices of oil and gas, while production of crude oil was 3% lower at 2.16 million barrels a day. Total production was 2% higher at 3.52 million barrels of equivalents a day.

Second-quarter earnings on an estimated "current cost of supply" basis were 26% higher than a year ago at $4.62 billion, or 69 cents a share. Earnings include a net charge of $545 million.

Income in the second quarter was $5.23 billion, 34% higher than a year ago, while cash flow from operating activities, excluding net working capital movements and taxes, was $8.7 billion, compared to $7.2 billion a year ago.

Analysts were forecasting earnings of about $5.44 billion in the quarter, according to a consensus compiled by



The company's most profitable unit, exploration and production, generated earnings of $2.74 billion, which is 48% higher than a year ago, reflecting higher realized prices partly offset by higher costs including depreciation.

But earnings from its gas and power segment, which includes liquid natural gas operations, fell 97% compared to last year's second quarter, due to the divestment of power generation assets. LNG sales, however, were up 2% over a year ago.

The company said capital investment for the quarter was $4.1 billion, of which $3.2 billion was invested in exploration and production, reflecting new projects in Qatar, Nigeria and Libya, as well as market inflation specific to large construction projects and foreign exchange rate movements. Shell said it intends to increase exploration expenditure to $1.8 billion annually in 2005 and 2006.

Shell's 2005 total capital investment, across all its business activities, remains about $15 billion, excluding the investment by the 45% minority partners of Sakhalin II.

As for its production outlook, Shell reiterated its previous estimates for 3.5 to 3.8 million barrels of oil equivalent a day in 2005 and 2006.