Shell oil reports 1st-Q profits fell 62% to $3.49 billion

Europe's largest oil company, Royal Dutch Shell PLC, reported a 62% drop in 1st-Q net profit as oil prices fell sharply in a global economic downturn. The net profit figure of $3.49B compares with $9.08B in that period a year ago. Sales fell 49% to $58.2B. "Conditions deteriorated further in the 1st-Q of '09 following a downturn across Q4," CFO Peter Voser said. Business "has continued to be under pressure so far in the 2nd-Q," he said. "This is a very difficult condition for the oil industry, & we need to be clear about it." The company's production arm reported a 67% fall in earnings to $1.7B. Both oil production & sales prices fell. Its refining arm saw earnings drop to $1.40B, down from $2.37B a year earlier, which analysts said was better than expected. Shares rose 0.2% to euro17.285 in Amsterdam. Shell said it pumped 3.5% fewer barrels of oil, 3.32M barrels & equivalents a day, due to quota restrictions by OPEC & attacks on its facilities in Nigeria. Shell's average selling price per barrel in the quarter was $42.16, down from $90.72 a year ago. Shell's invested heavily in new fields after 7 years of falling production & an accounting scandal in 2004 that forced it to slash proven reserves. It's promised an average yearly production increase of at least 3% through 2012. The company plans $31B in investments in 2009, compared with $20B by close rival BP PLC of Britain. Voser said the company has no plans to reduce spending, & Shell now has a total of 1M barrels per day of oil under development. "Royal Dutch Shell is still trying to get back on track after its reserve problems & major production declines in '04," said Peter Hitchens, analyst at Panmure Gordon & Co. in London. He said Shell is "doing the right thing" by investing in new production, but "in the short term it is vulnerable given its relatively high costs." One new field that began production in the quarter is a large gas project on Russia's Sakhalin Island expected to eventually deliver 395,000 barrels a day. Voser declined to say how much the field is producing now, but said it would be well into 2010 before it reaches full capacity. The company said it plans to pay $0.42 a share dividend in the 1st-Q, a 5% rise. Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers in London, recommendation on shares. "Production has suffered & will remain under further pressure due to the Nigerian situation," he said, adding Shell's debt is rising due to the combination of heavy investment & healthy dividend. "However, the sustainability of the dividend doesn't seem to be in question," he said. He said he expected Shell to cut costs in the coming year and the company "remains extremely cash generative, bolstered by its sheer size and diversity."