Output fall and rising costs take Shell profits toll

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Just two days after its arch-rival BP revealed a stinker of a third quarter with a 45% dive in profits, Shell said its profits in the three months to the end of September are down 11%.

The City was expecting much worse, pencilling in a dive in third-quarter profits to $5.6 billion (£2.7 billion). In the event, they came in at $6.1 billion against $6.9 billion for the same quarter of 2006.

For the first nine months of 2001 Shell profits are running 8% better at $20.8 billion - or $76 million a day.

"Given the industry's weaker refining margins we have seen in the quarter, these are satisfactory results," said Shell chief executive Jeroen van der Veer.

In a thinly veiled swipe at BP, he added: "These results are underpinned by Shell's operating performance. We continue to rejuvenate our portfolio with sustained investment in new legacy assets and through disposals.

"I am pleased with the progress during the quarter with the launch of new refining and liquefied natural gas projects and further assets sales."

In contrast to BP boss Tony Hayward's downbeat delivery earlier this week and the threat of thousands of job losses hanging over BP workers - 300 cuts were announced at Aberdeen yesterday - Van der Veer was upbeat.

"The execution of our strategy is on track," he declared.

However, Shell's results reveal further falls in production. For the third quarter, average output was 3.13 million barrels a day, down from 3.17 million in the second quarter and 4% worse than a year ago. Shell is sticking to its fore-casts of between 3.3 million and 3.5 million barrels a day.

"There is a great seasonality to the business," said finance director Peter Voser. "Production is ramped up for the fourth and first quarters of the year when more gas and oil is needed for the shorter days and increased use of electricity in the northern hemisphere."

But Shell admitted it has been hit by tighter profit margins downstream as crude prices have risen just as more product has come on the market after summer maintenance slowdowns.