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Shell 3Q earnings double
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November 4, 1999: 7:28 a.m. ET
But world No. 2 oil company's results at lower end of expectations
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LONDON (CNNfn) - Royal Dutch/Shell reported a 115 percent jump in third-quarter earnings Thursday, boosted by a 65 percent jump in the price of oil and the first effects of its $2.5 billion cost cutting program.
Shell's adjusted current cost net income, the standard measure of an oil company's profitability, rose to $1.81 billion in the quarter versus $841 million a year earlier. Revenue rose 21 percent to $40.1 billion.
The figure, however, came in at the bottom end of expectations and the company's shares fell 2.1 percent in London to 455 pence. Analysts identified improvements in the chemical and downstream areas, but said a much lower-than-expected tax charge, which saved $500 million, was some cause for concern.
"It's good news if it can be sustained, but we will have to wait and see," Ranald Wright, oil analyst at Credit Lyonnais in London told CNNfn.com, who said he was waiting for clarification from the company.
The massive rise in the oil price, compared to the same period last year, significantly boosted earnings at the Anglo-Dutch oil giant. In the third quarter of 1998, benchmark Brent crude averaged $12.45 per barrel, while for the same three months this year the price had shot up to $20.60.
Adjusted earnings in the exploration and production division soared 305 percent to $1.16 billion in the third quarter mainly due to the jump in the oil price.
Shell's chairman, Mark Moody-Stuart, was upbeat about the company's performance after he unveiled a major restructuring program last December to take $2.5 billion in costs out of the business.
"We've beaten most of the competition again in terms of how we've bettered our results compared with the same period last year," he said. Moody-Stuart pointed to Wednesday's announcement that Shell's polyolefins business will be included a joint venture with Germany's BASF as an example of the acceleration of the company's portfolio restructuring.
He warned employees, however, that there was more pain to come. "We've all had to swallow some harsh medicine in the last year and I can't promise there isn't more to come," he said.
Analysts agreed that on the cost-cutting side the company has a lot of work to do to narrow the gap with its main rivals, Exxon and BP Amoco. "Shell still has a long way to go before it catches up with the likes of BP Amoco. It has not taken out much in terms of the cost of sales yet," Wright said.
Earlier Thursday, the world's No. 2 oil company said it would probably close one of its eight refineries in Australia.
In the nine-month period, adjusted current cost net income rose 12 percent to $4.86 billion as revenue increased 2 percent to $105.9 billion.
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