Cold winter warms Royal Dutch/Shell

The cold European winter helped Royal Dutch/Shell, Europe's largest oil group, to record its best ever first-quarter result with a 24 per cent surge in earnings. The pounds 300m jump in net profit before exceptional items to pounds 1.54bn beat analysts' expectations.

"Strong upstream and downstream earnings world-wide far outweighed weaker chemical results," Shell said yesterday. Analysts were yesterday looking to raise their 1996 current cost net income forecasts for the Shell group by between 5 and 10 per cent, to a range of pounds 4.9bn to pounds 5.4bn. Dividend forecasts are also under review for a possible upgrade.

Buoyed by the first-quarter results, analysts said Shell's share price was looking cheap compared with the rest of the UK stock market, and especially its rival BP.

Shell benefited from "exceptional trading conditions" in the first quarter, with natural gas sales volumes up sharply, higher crude oil prices and refining margins, said Alan MacDonald of SBC Warburg. "What you are really looking at here is a volume growth story and some cost-cutting," he added.

Shell said upstream volumes grew by 8 per cent, while refinery throughput volumes were up 8.5 per cent.

Rod Maclean at ABN Amro Hoare Govett said he will lift his 1996 current cost net income forecast to pounds 5.1bn. "We think there is a lot more to these first-quarter results than weather benefits," he said. Analysts also focussed on the strong first-quarter cash flow, up at pounds 2.5bn from pounds 1.8bn in the prior year, suggesting that as 1996 is a centenary year, Shell may be considering a special dividend payout. Capital and exploration expenditure was held at 1995 levels at pounds 1.5bn.

The higher oil prices and surge in natural gas sales during the harsh European winter produced a strong increase in Shell's most profitable oil and gas production business. But the refining and marketing profit rose far more than expected as Shell took advantage of its position as a top supplier of gasoline and heating fuel in Europe and the Asia-Pacific region.

"They have a large proportion of their refining and marketing portfolio in the high-growth markets, and they are doing a lot better than the other major oil companies there," said Alan Marshall of Robert Fleming Securities.

While the largest collection of Shell's 51 refineries is in Europe, it has 16 in the Asia-Pacific region, where fuel demand in some countries is growing by as much as 12 per cent a year.

"They have been known for years as one of the best marketers around. They have done well in the growth markets, displacing the domestic players and some of the majors," said David Steadman of Daiwa Europe. Shares in Shell closed yesterday up 35.5p at 887p.