Good results put Shell on road to recovery

MARK MOODY-STUART, the chairman of Royal Dutch Shell, yesterday pledged that the group was on course for financial recovery after reporting better than expected first-quarter results.

However, Shell also warned that the recent rise in oil prices, which touched $16.70 a barrel yesterday, may not be sustainable and that a new phase of price weakness could be triggered unless oil exporters stick to the production cuts agreed in March.

Shell achieved a current cost net income of $1.436bn in the three months to the end of March, helped by tight control over capital expenditure. Although the figure was 26 per cent lower than a year ago, owing to an average oil price of $11.30 during the quarter, it was still much better than the market had expected.

Mr Moody-Stuart, who has conceded that his job is on the line following last year's $4.5bn write-down and 95 per cent plunge in profits, said: "We're not there yet but I'm quietly confident we're heading in the right direction."

He described the results as "encouraging" and cautioned that, although Shell still had a long way to go, it was performing better than its competitors in several sectors.

The shares gained 6 per cent, rising 26.5p to 470.5p as the market applauded. Analysts were particularly heartened by the control Shell is exerting on capital expenditure, which fell from $3.8bn to $1.7bn, quarter-on-quarter. This puts Shell on course to hit its target of cutting annual expenditure from $13bn last year to under $11bn this year. Analysts said this demonstrated that Shell was focusing on improving returns rather than on growth. The company has pledged to reduce its costs by $2.5bn and raise its return on capital to 14 per cent by 2001.

The results show it still has a long way to go to catch up with the likes of Exxon and BPAmoco. On a rolling 12-month basis, return on capital employed is running at just 1.9 per cent.

The market will have to wait for the half-year results to hear how much progress Shell is making towards its $2.5bn cost-reduction target. But Mr Moody-Stuart said its performance was improving, particularly in oil products and the group's US exploration and production business.

Similarly there was little concrete news on the asset disposal programme, which will see 40 per cent of Shell's chemicals portfolio sold off, including 50 per cent of its interest in Montell, which is expected to fetch up to $2.5bn. But Shell expects to make progress in the summer on the sale of its Tejas downstream gas assets in the US, reckoned to be worth more than $1bn.

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