Shell �road map� paves way to record quarter

Mark Moody-Stuart, Chairman of Royal Dutch/Shell Group, yesterday unveiled best-ever second quarter profits of more than $3.2 billion for the Anglo-Dutch energy giant, crediting soaring oil prices and $500 million in cost reductions for the record figures. E&P led the charge with earnings of over $2.1 billion, a 159% step-up on financials for the second quarter of 1999.


Darius Snieckus
OGJ Online

LONDON�Mark Moody-Stuart, Chairman of Royal Dutch/Shell Group, yesterday unveiled best-ever second quarter profits of more than $3.2 billion for the Anglo-Dutch energy giant, crediting soaring oil prices and $500 million in cost reductions for the record figures.

On an estimated current cost basis, excluding special items, Shell�s adjusted earnings for the quarter came close to doubling the figures reported for the same period last year, jumping from over $1.6 billion to $3.15 billion. E&P led the charge with earnings of over $2.1 billion, a 159% step-up on financials for the second quarter of 1999.

Moody-Stuart acknowledged �a lot of [this increase] is [due to] price,� but stressed the contribution made by �serious� cost reductions �in every [Shell] business� over the last 12 months.

The Shell chairman underscored the influence the nearly $3 billion in annualized cost improvements had had on what he termed �excellent� quarterly results, adding that the group had �delivered almost three quarters of the targetted $4 billion in cost improvements in half the time.� In 1998, Shell set out its aim to achieve this cost improvement as part of its corporate �road map,� a strategic plan to �integrated, sustainable development thinking in the way [it] does business.

�On a pre-tax basis, our cost improvements so far are almost $3 billion, and that is a lot of progress since the end of last year, when we were just below $2 billion,� said Moody-Stuart. Nested within these savings are some $660 million in exploration costs cut over the last year by Shell.

There was no mistaking the shot in the arm provided by oil price, which translated in more than $2 billion, but Moody-Stuart pointed to cutting of some $500 million in costs, after tax, in the last year as having given the group �quite a lot of assistance� in its cost improvements drive.

Downstream, gas and power brought in $165 million, an 85% increase, in the second quarter for Shell, while oil products earnings were up 63% to $582 million, and chemicals�the one disappointment for the group�made $239 million, down 2%.

Based on return on capital employed, a yardstick of cross-sector performance, Shell has recovered fully from �a very bad position in 1998,� said Moody-Stuart, to one where it is �leading the pack� of majors ExxonMobil, Chevron, Texaco, and BP.

�This is always something that is very difficult. It is absolutely essential to look at the numbers on a comparable basis, no smoke and mirrors�that is, [without] excluding the special items�or anything that would distort the numbers,� he stated.

�The return on capital employed as of June on a rolling 12-month basis was 16%, so we are well on the way to meeting our 14% target, $14/bbl, and the other premises of the �road map�.�

Shell also hit a new �all-time high� with half-year earnings of $6.3 billion, again better than doubling last year�s figure for this period of $3.1 billion. Earnings in E&P, gas and power, oil products, and chemicals were all up on the same period last year�E&P by 188% to over $4.4 billion�despite the �impact of the environment was considerably different for each of businesses.�

Gas and oil production saw �significant ongoing� underlying growth of 8% and 7%, respectively, year-on-year for Shell. The group has added some 3 billion cu m in gas from new fields and 168,000b/d from new oil developments of this period.

Lasmo, too, fares well
Meanwhile, UK independent Lasmo PLC yesterday announced record earnings of �126 million for the first half of 2000, with Chairman Anthony Hitchens crediting �adherence to disciplined capital management.�

Lasmo�s production for the period averaged 194 million boe/d, up 15% on the first half of 1999, chiefly due to the company�s �increased equity participation in and improved performance from [the UK] Liverpool Bay development and a growing contribution from [the] Dacion [project] in Venezuela.�

On the exploration and development front, Hitchens pointed to participation in four deepwater discoveries off Indonesia�Gula being the latest�as well as oil finds in the Zamuro and Lorito wells in Venezuela, underpinning its �successful first half.�

Successes in a time of a high oil price, he stressed, would not lead Lasmo into the trap of �overcommitment and excessive growth ambitions.

�Lasmo is keeping capital expenditure under strict control, and we remain cautious over the direction of commodity prices,� Hitches stated.

More in Companies