WRAPUP 1-Shell, rivals tackle lower output as profits soar

Thu Jul 28, 2011 5:27am EDT

* High oil prices lift earnings

* Companies face rising costs

* Shell's big new projects beginning to come on line

By Tom Bergin

LONDON, Jul 28 (Reuters) - Royal Dutch Shell Plc (RDSa.L) and other oil giants reported big profit increases on Thursday, as high oil prices masked the impact of lower crude and gas production.

Shell said second-quarter current cost of supply net income rose 77 percent to $8.00 billion, helped by non-cash accounting gains and asset sales.

"Shell reported a solid set of results for 2Q," analysts at Bernstein said in a research note. "We believe Shell can deliver production growth & improving per barrel profitability."

The Anglo-Dutch firm's result excluding one-off items jumped 56 percent, in line with forecasts but ahead of most rivals.

Second-quarter underlying profits, denominated in dollars, rose 39 percent at Norway's Statoil and 9 percent at Spain's Repsol <REP.MC, according to Reuters calculations. BP reported a 13 percent rise in profits calculated on the same basis on Tuesday.

However, all the companies reported lower production, reflecting the challenge the Western oil majors see: how to grow while facing investment restrictions in the countries with the richest reserves, such as in the Middle East and Russia.

Shell said oil and gas production fell 2 percent to 3.05 million barrels of oil equivalent per day (boepd) in the April-June period, due to field sales and a warm second quarter which hit European gas demand.

Excluding divestments, output rose 2 percent compared to the same period last year -- a sign that the company's large recent investment in new projects is beginning to show returns.

In the first half of the year, Shell started up three new projects, a Canadian oil sands venture and two gas plants in Qatar, in which it had invested $30 billion.

Statoil said output fell 14 percent in the quarter to 1.69 million boepd, as it also suffered from weak gas demand and delays to drilling in the Gulf of Mexico due to the slow start in issuing permits after the end of a drilling moratorium announced in the wake of the BP oil spill.

Statoil also cut its output forecasts for the full year.

Repsol said production fell 13 percent to 296,000 boepd following outages due to violence in Libya and delayed Gulf drilling.

The companies also warned on rising costs. Statoil said its per barrel production costs rose 15 percent. Shell did not give a figure but the company's Chief Financial Officer said industry inflation was returning after a period where oil companies managed to squeeze suppliers.

Shell's London-listed "A" shares traded down 0.8 percent at 0850 GMT, in line with the STOXX Europe 600 Oil and Gas index . Statoil's shares were up 0.4 percent and Repsol's were up 1.6 percent. (Editing by Sophie Walker)

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