Surge in oil prices helps lacklustre Shell out of trouble

Shell, the Anglo-Dutch oil giant, announced another set of lacklustre results yesterday as the unexpected surge in the price of oil helped to offset crashing chemicals earnings and the continuing drain from the world- wide petrol price war.

The group's net income in the third quarter of the year rose by 26 per cent to pounds 1.33bn. However, the improvement was entirely due to a 74 per cent jump in earnings from oil exploration and production to pounds 599m.

Underlying income from refining and marketing activities slumped by 27 per cent to pounds 422m while chemicals earnings dived by 40 per cent to pounds 189m.

The figures, which were slightly below expectations, disappointed the markets. Shares in Shell Transport, the UK side of the group, fell by 13p to pounds 10.07.

John Toalster, an oil analyst from investment bankers Societe Generale, explained: "Yet again it's a mixed bag. It's disappointing that oil prices are up so much and oil sales were so strong and yet profits on those businesses could have been better. These results don't compare particularly favourably with the US oil companies."

Oil prices between June and September averaged $20.90 a barrel, some $4.75 higher than during the same period a year ago. At one stage in September the price of Brent crude hit $23.50. The impact of the oil price surge was particularly marked in the United States, where income from Shell's businesses more than doubled to pounds 155m. Earnings in the rest of the world were up by 62 per cent $444m.

However leading oil analysts from NatWest yesterday suggested the industry may have already seen the best of the price increases. The possible resumption of oil supplies from Iraq if the deal to trade oil for food aid goes ahead after the US presidential elections this month could result in a considerable softening in oil prices by the end of the year.

The biggest surprise from Shell came from the 5 per cent boost to its production volumes, which was far higher than most other oil firms and was about double the world growth rate. Gas production rose even further, by 18 per cent.

Shell's troubled refining operations were hit once again by stiff petrol price competition. The increase in petrol prices over the past few months has failed to keep pace with the rise in crude oil prices, resulting in weaker refining profit margins.

The figures also disclosed that Shell remained some way off meeting its internal target for the rate of return earned on it assets. The return on capital of 11 per cent in the 12 months to the end of September compares with a target of 12 per cent, though an improvement on the 10.4 per cent figure for the year to end of June.