By the OGJ Online Staff
LONDON, Feb. 7 --Royal Dutch/Shell Group has said it would be placing a growing emphasis on the development of natural gas assets as it announced fourth-quarter profits almost halved because of falling crude oil prices.
The company, Europe's biggest, also confirmed that it has at least $11 billion available to acquire assets.
Chairman of Shell's board of managing directors, effectively its CEO, Phillip Watts also revealed that he recently met Russian Premier Vladimir Putin at the country home of the UK Prime Minister Tony Blair and had discussions about Shell developing its gas assets on the far eastern Russian Sakhalin Islands. He said that a project involving a liquefied natural gas development to supply South Korea and Japan had been discussed. "I was very encouraged," he added.
He also said that the company has been in discussion with Iran about the possibility of developing an LNG project there, possibly in cooperation with the Spanish company Repsol-YPF SA. Repsol could be a takeover target for Shell if, as analysts predict, it shortly begins an acquisition program.
Another possible gas development could soon be announced in Nigeria where up to a further four LNG trains could be built to meet growing European demand for LNG. Watts said, "LNG really is a gem for us."
Watts said the potential projects in Russia and Iran were politically sensitive, but that as far as Iran was concerned, it was a matter for the governments within the European Union and the US. He noted the company is aware of political sensitivities, having parents in the UK and the Netherlands and interests in the US.
Shell also was drawn into the debate over the role of company auditors following the Enron Corp. bankruptcy. In answer to questions, the company said it used two auditing companies, Price Waterhouse Coopers and KPMG, and rotated the lead role.
Watts said, "Shell is a different company from Enron. There was a time when we were criticized for not being more like Enron, but I am glad that were are a little bit more careful in how we do things. We have published our accounts, and with Shell what you see is what you get."
The fourth quarter figures announced by Shell were at the lower end of stock market forecasts, although its full-year earnings were the second best ever reported by the company and only marginally below those reported in the record year of 2000.
Adjusted net profit for the quarter was almost halved at $1.909 billion, down from $3.579 billion a year ago and compared with analysts' expectations of $1.9-2.3 billion. Full year adjusted earnings were $12 billion, the second highest ever and only 9% below the record results of 2000.
Watts said, "Shell has again delivered a very strong financial performance. The oil price has fallen markedly from last year, but another year of increased hydrocarbon production and record earnings in our oil products and gas and power businesses have ensured this continuing robust profitability. We are pleased to confirm that we have beaten the demanding returns and cost targets we set ourselves 3 years ago."
Shell has now cut its forecast for oil and gas production growth as supplies in the UK and US decline. The company now expects growth to average 3%/year up to 2005, from 5% previously. Production figures for the quarter showed oil output down by 1% from a year ago. Profits from E&P operations for the year were 15% lower than in 2000 at $8 billion.
Shell also said that natural gas prices, which fell by 62% on average in the fourth quarter in the US, will stay low for the rest of the winter and spring. Because of weak economies, refining margins in Europe and the US after falling as much as 60% in the fourth quarter won't recover in the first half of this year, the company has reported.
Earnings from the natural gas and power unit rose by 10% to $172 million from $157 million, although in the full year they rose by 62% to $1.2 billion with overall LNG sales up 19%. Earnings from chemicals dropped 69% to $33 million from $106 million, excluding special items, while profits from refining and marketing declined 38% to $585 million from $951 million.
Shell said Malcolm Brinded of the British side of the company would become one of the five managing directors, following the resignation of Harry Roels of the Royal Dutch arm. It gives the UK side a majority on the committee. Royal Dutch holds 60% of the combined group and Shell 40%.
