Royal Dutch Shell, Europe's biggest oil firm, yesterday reported record UK and European company profits of $27.6bn (£13.9bn) for 2007, an increase of 9% on a year earlier.
Royal Dutch Shell, Europe's biggest oil firm, yesterday reported record UK and European company profits of $27.6bn (£13.9bn) for 2007, an increase of 9% on a year earlier.
However, profits for the fourth quarter missed analysts' forecasts because a fall in production levels tempered the benefits of soaring oil prices that hit record levels of around $100 a barrel in December.
Shell, headed by chief executive Jeroen van der Veer, said its fourth-quarter current cost of supply (CCS) net income rose 11% to $6.7bn (£3.4bn). Excluding one-off items, the result was in the lower end of City analysts' range of estimates.
CCS earnings strip out unrealised gains or losses from changes in the value of fuel inventories, and the figure is comparable to the net income of US oil companies.
Shell said its oil and gas production division, including its North Sea activities based in Aberdeen, was mainly responsible for the increase in profits.
Like other oil major petroleum companies in recent years, the UK-Dutch company relied on a big leap in oil prices to make up for a 6% drop in oil and gas production and a rise of more than 10% in costs.
Shell's record profits sparked calls from trade union Unite for a windfall tax on its earnings.
Shell rejected the windfall tax calls, arguing that the profits figure is almost matched by the amount it spends on securing new energy sources.
Despite Shell's big profits, many City analysts were less than impressed by the results.
Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers, commented: "The annual figures are record breaking and have been helped along by the strength of the oil price and one-off gains. Nonetheless the fourth-quarter numbers did miss analysts' expectations by a whisker and the reserve replacement figures, which will not be announced until spring, are the cause of some disquiet."
He added: "Ongoing issues in Nigeria and Canada, along with uncertainty surrounding the outcome of the Opec (oil cartel) meeting (today) and weak refining margins, have also weighed on the shares." He was referring to persistent violence in the oil-producing region of Nigeria and a fire at an oil sands site in the Canadian province of Alberta.
Shell has retreated from targets to expand production in coming years. Chief financial officer Peter Voser refused to restate a plan for 1% to 2% growth to 2010 and said output was likely to fall slightly in the current year.
Shell will have to pay more to achieve even this modest aim, with capital expenditure for 2008 now seen by the company growing around 7% to $28bn-$29bn after a 15% rise in 2007.
Shell also indicated 2007 oil and gas reserve additions may disappoint, saying at least one billion barrels of resources were added in the year, compared with well over two billion in 2006.
Shell's London-listed "A" shares added 2p to 1791p.
The company has been struggling to rebuild investor confidence since admitting in 2004 that it had overstated its reserves by around a third.
A new management team was brought in, and over the past two years the group has posted a strong financial performance, helped by record oil prices.
However, the oil price environment made an operational turnaround tougher, shifting the balance of power away from international oil firms such as Shell and Exxon Mobil to the governments of resource-holding nations.
Increasingly these governments prefer to have their state oil companies develop reserves, making it hard for the western majors to grow output and reserves.
