Shell reports upstream upside surprise

Integrated oil and gas titan Royal Dutch Shell's upstream activities drove a bigger than expected increase in the Anglo-Dutch group's first quarter earnings.

Underlying earnings on a current cost of supplies (CCS) basis rose to $7,279m from $6,288m in the corresponding quarter of 2011. Charles Stanley analyst Tony Shepard had pencilled in a figure for earnings after tax of $6.5bn.

Earnings from Upstream activities - oil and natural gas production - rose to $6,253m from $4,638m the year before, Charles Stanley had predicted Upstream earnings of $5.6bn.

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Downstream operations (which includes activities like refining) saw CCS earnings slide to $1,121m from $1,653m the year before. Investec says refining "continues to be a drag" with margins under pressure.

One factor in the improved earnings was that the average price of crude oil during the period was $118.45 per barrel, against $105.52 in the same period of 2011. This helped Shell overcome lower natural gas prices in the US, where shale gas fields and hydraulic fracturing techniques have boosted supply.

Total production of oil and gas rose to 3.552m barrels of oil equivalent per day (BOEPD) from 3.5m in the prior year. Shell is targeting 4m BOEPD per day by 2017.

As previously announced, the company is paying quarterly dividends of 43 cents this year.

"Shell's first quarter 2012 earnings increased from year-ago levels, through a combination of improved operating performance, increased upstream volumes and strong oil prices," said Chief Executive Officer Peter Voser.

"Energy demand fundamentals are robust, but with near-term

volatility in energy prices as a result of economic and political events. In downstream and North American natural gas we see continued challenges for our industry," he added.

Shell shares had risen 2.9% by 10:15. Over the last 12 months the stock is down 4.4%.

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