Shell slammed over record profit

pounds 9.3bn profit attacked as `obscene' w Oil reserves cut again by 1.4 billion barrels w Dividend to hit $10bn

THE OIL giant Shell came under savage attack from all sides yesterday after reporting the biggest profit in UK corporate history alongside yet another cut in its reserves.

Fuel, poverty and environmental groups denounced the pounds 9.3bn or pounds 1m-an- hour profit made last year by Shell on the back of soaring oil prices and domestic energy bills.

But investors also expressed concern after the Anglo-Dutch company had cut its estimate of proven reserves by another 1.4 billion barrels or 10 per cent - the fifth downgrade in the past 13 months. Shell's reserves, which are a guide to its future profitability, have been slashed by one- third since January last year to 12.95 billion barrels.

The company shrugged off calls from Labour MPs and union leaders for a windfall tax on its bumper profits amid accusations it was "obscene" to be making so much money when average household energy bills had risen by pounds 100 a year.

But the company also faced flak from the City over its poor record on replacing production with new reserves. The fresh reserves downgrade overshadowed Shell's pledge to increase dividend payments to $10bn (pounds 5.3bn) this year and buy back $3bn-$5bn worth of stock, and the shares dipped 2 per cent to 471.25p.

Suggesting that a windfall tax on Shell's North Sea income might be justified, Martin O'Neill, the Labour MP and chairman of the Commons Trade and Industry Select Committee, said: "We need to very carefully look at the make up of the profits to see if they have benefited from the rise in oil and gas prices in the UK, which affect the poorest households especially."

Tony Woodley, the general secretary of the Transport and General Workers Union, meanwhile said: "Such levels of excess are, quite frankly, obscene. With our pensions in crisis, these profits are 9.3 billion extra reasons for a windfall tax."

Malcolm Brinded, Shell's head of exploration and production, rejected the calls for a levy, saying: "If there is an imposition of a windfall tax, it will, as tax changes have done in the past, knock confidence, knock investment and in the end damage both business and the interest, in terms of fiscal income, of the UK."

Shell refused to specify how much profit it made in the UK last year or how much tax it paid the Exchequer. However, Mr Brinded said the UK North Sea accounted for only 15 per cent of Shell's worldwide production of 3.77 million barrels a day. Shell's total tax charge last year was $15.2bn although the bulk of this will have been paid overseas.

The Shell chairman, Jeroen van der Veer, refused to rule out yet another reserves downgrade until the company's figures had been vetted by external consultants and approved by the US Securities and Exchange Commission. Nor would he comment on whether it would be a resignation matter if reserves were slashed further, saying only: "I believe in the concept of accountability."

Shell said its key reserves replacement ratio - the rate at which production is being replaced by new oil discoveries - would be in a range of 45-55 per cent for 2004, compared with a forecast of 60-80 per cent as recently as last July. Other oil majors such as BP regard a replacement ratio of anything less than 100 per cent as a failure.

Mr Brinded admitted that the figure for last year was a "disappointment" and said the ratio for this year would also remain below 100 per cent. He said Shell was "reasonably confident" of achieving an overall figure of 100 per cent for the 2004-2008 period.

However, analysts were less confident. Investec Securities said Shell was facing "considerable and continuing upstream challenges" in raising its level of reserves, whilst Tony Shepard, of Charles Stanley, warned that the company had much still to do to win back shareholder confidence. "Although a line may finally be drawn under this sad episode, Shell still needs to improve its operating performance, especially its reserves replacement ratio," he said.

Henk Potts, of Barclays Private Clients, said: "Coming to the market so many times and telling us about the oil reserves is not just careless, it's getting predictably boring."

The bulk of Shell's 38 per cent increase in profits last year came from its oil refining and marketing activities which include petrol retailing. Profits from this part of the business doubled from $3.1bn to $6.5bn with Europe and the Asia Pacific region accounting for the bulk of the increase. However, Shell's finance director, Peter Voser, insisted that UK petrol retailing remained "one of the toughest markets we are in".

Outlook, page 39

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