Sharp falls in profits at Shell and Exxon Mobil

Sharp falls in profits at Shell and Exxon Mobil disappointed investors yesterday as the two oil majors reported second-quarter results hit by falling returns on fuel refining.

The world's largest oil company, Exxon Mobil, reported net income of $2.64bn (£1.7bn), down 41 per cent compared with a year ago. Its shares fell $3.11 to $33.65 in New York.

Shell shares fell 30.5p to 405.5p, as its results dismayed investors after its exceptionally healthy performance in the first three months of the year had built up hopes of a rebound.

Coming in the same week as healthier second-quarter results from its arch-rival BP, Shell's figures led analysts to raise concerns about the rest of the year for the company.

Peter Hitchens, of Crédit Agricole, said: "A lot of people had looked at Q1 and hoped that was the start of a recovery. These figures show that recovery is not really coming through. I think it'll take another 12 to 18 months to get things motoring."

Second-quarter net earnings were down 38 per cent, compared with the period last year, at $2.20bn, below expectations of $2.45bn. The company blamed weak fuel refining and natural gas returns. Margins on refining suffered in the second quarter as a result of slack demand, excess supply and firm crude oil prices. The company also shut two large refineries during the period.

Shell's chairman Philip Watts said: "Our results this quarter were, frankly, not as good as we wanted ... but we know what we have to do about it."

Return on capital employed, on the adjusted basis, for the first half was 13 per cent ­ at the bottom of the 13 to 15 per cent target band. Shell raised its interim dividend just 1.7 per cent to 5.95p a share for holders of the London-listed stock, leading some to question the company's confidence. Shell had outshone BP in first-quarter results, but with the second three months of the year, that situation was reversed.

Jon Wright, an analyst at HSBC, said: "The second quarter was difficult downstream for Shell. I think they could now be struggling to make their cost-savings target [for 2002] ... BP now has the upper hand again."

Shell made cost savings of $140m in the first half against a full-year target of $500m. The company insisted that, if the first half was taken as a whole, its performance was "robust".

The company, which has the biggest presence of any oil group in Nigeria, said it would be "helpful" if that country's Opec quota was extended. Shell is estimated to be losing about 65,000 barrels a day in foregone output in Nigeria because of the country's quota constraints. Nigeria has said that it will press Opec for a bigger quota.

Paul Skinner, Shell's managing director, said: "The country [Nigeria] by virtue of installed capacity and economic need clearly needs a higher quota. If that were to happen it would be beneficial to our production there."