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Shell pumps up income
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August 5, 1999: 8:58 a.m. ET
No. 2 oil company reports 5% rise in 2Q earnings on cost-cutting benefits
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LONDON (CNNfn) - Royal Dutch/Shell, the world's number-two oil company, reported a 5 percent rise in second-quarter earnings -- at the top end of expectations -- as the initial benefits from its cost cutting program started to come through.
Current cost net income rose to $1.61 billion from $1.54 billion a year earlier -- the figure takes into account the current replacement cost of oil supplies and excludes one-time items. Analysts were looking for earnings in a range of $1.1 billion to $1.8 billion.
Shell's shares jumped 3.9 percent in London to 514 pence in early afternoon trading, while Royal Dutch Petroluem's stock was up 4 percent in Amsterdam at 59 euros. The rally came against a backdrop of a 17 cent rise in benchmark Brent crude to $19.80 a barrel Thursday.
The Dutch holding company Rotal Dutch Petroleum controls 60 percent of Anglo-Dutch oil giant, and accounts for 10 percent of Amsterdam's blue-chip index. Britain's Shell Transport & Trading owns the rest.
The company said that a combination of cost-savings and rising crude oil prices offset a slump in refining margins.
Shell said it had already reduced costs by $450 million out of a total of $2.5 billion in the annual savings it is looking for by 2001.
"We believe the plans put in train last year are starting to show improvement across the board. In fact . . . those gains are coming through faster than we thought," chairman Mark Moody-Stuart told Reuters.
Cost cuts helped the chemicals division report a 42 percent jump in earnings to $244 million. John Toalster, oil analyst at SG Securities, told Reuters the division had "performed much more strongly that we imagined."
Rising oil prices boosted the earnings of its exploration and production by 62 percent to $819 million. The price of benchmark Brent crude averaged $15.45 per barrel during the second quarter versus $13.30 per barrel a year earlier.
The refining business suffered in contrast, with the rising price of oil affecting margins that were already under pressure from high distillate stocks and overcapacity in the Asia-Pacific region. Margins in Europe collapsed to 60 cents per barrel from $2.30; in Asia, returns fell to 40 cents from $1.90; and in the U.S., the figure halved to $2.10 per barrel.
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