Royal Dutch/Shell Earnings Double

Royal Dutch/Shell's earnings more than doubled in the third quarter from a year ago, due to much higher oil prices and a corporate overhaul. Chairman Mark Moody-Stuart said that although the results are favorable, he continues to be cautious. "We've all had to swallow some harsh medicine in the last year and I can't promise there isn't more to come." Adjusted current cost net income grew 115 percent to $1.81 billion - toward the bottom of the range of analysts' forecasts that stood between $1.79 and $1.96 billion. Unadjusted net income at $2.378 million was up 165 percent and the highest ever third-quarter figure. Eleven months ago, the group responded to the worst oil industry conditions for a quarter century. It eschewed the takeover course followed by giant rivals Exxon, BP and Mobil for a self-help $2.5 billion cost-cutting and disposals plan. Shell shares have climbed 26 percent and Royal Dutch 35 percent in the past year, better than even sector darling BP Amoco Plc's 23 percent, as the revamp takes shape. Key to the plan was reduced exposure to troubled petrochemicals, in particular finding a 50 percent stake partner for its world polypropylene market leader Montell. Recently, Shell officials said Germany's BASF AG may be that partner, proposing to join Montell with Elenac, an existing Shell-BASF venture, and BASF's Targor polyolefins business. "Exploration and production figures were a bit weaker than I was expecting, but refining and marketing was quite good, certainly better than Exxon's," said Peter Hitchens of Williams de Broe. Exxon's Q3 figures showed non-U.S. refining and marketing earnings all but wiped out. Shell's third-quarter exploration and production earnings were over four times higher than last year, while oil products (refining and marketing) earnings fell by only 13 percent. The Montell-BASF deal could produce a BASF payment to Shell of around $1.2 billion to compensate for its much larger input to the venture, together with $100 million a year of extra cost savings, analysts said. "For those who did not believe that RD/Shell was capable of having the focus and ability to restructure its chemicals business then this (Montell-BASF deal) is a sudden wake-up call," said Wendy Andersen of Lehman Brothers. Shell reported higher chemicals earnings in the quarter and forecast an improved near-term outlook in the sector. Growing world demand and an economic recovery in Asia should provide a basis for continuing oil price strength over coming months, it said. Return on average capital employed (ROACE), a key industry performance measure, fell to 2.9 percent from 9.2 percent in the year to September 1999. But excluding asset writedowns in the third quarter a year ago, 1998-99 ROACE was eight percent. Moody-Stuart said that the group's 2001 target of 14 percent assuming $14 per barrel oil was "pretty well on target". Capital expenditure is accelerating in the 4Q to bring total 1999 spend up to just under $10 billion from $5.541 billion in the first nine months, the group said, but Moody-Stuart said there would be no return to 1996-97 levels of 15-16 billion.