Bottom Line: Shell disappoints

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SHELL shares rose yesterday morning ahead of publication of first-quarter results. The market was hoping that the figures, like BP's last week, would contain a pleasant surprise.

As it turned out it was a forlorn hope and the shares ended the day down 1p at 741p.

Profits from exploration and production, the part of Shell's businesses most directly affected by the slump in oil prices, were as bad as most expected. Earnings from exploration and production fell 27 per cent, outstripping even the 23 per cent fall in the price of oil over the period.

However, a strong performance from Shell Chemicals after cost- cutting, coupled with a rise in profits from selling fuel, disguised the difficulties upstream.

BP, which is already cutting costs upstream already, looks a better investment in the short term, despite its lower yield, as cost savings drive faster dividend growth.

But if Shell grasps the nettle and shaves costs to suit the lower oil price environment, as it has done in chemicals, it has greater long-term potential.