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Shell Beats Estimates Amid $1.9 Billion Writedown on Gas

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, beat analysts’ second-quarter earnings estimates while pushing ahead with a restructuring program that saw it write off about $1.9 billion in U.S. gas assets.

Profit excluding one-time items and inventory changes gained 33 percent to $6.1 billion from $4.6 billion a year earlier partly on higher U.S. energy prices, The Hague-based Shell said today in a statement. That beat the $5.6 billion average estimate of 18 analysts surveyed by Bloomberg.

“The impairments we have announced today in Upstream Americas reflect the restructuring of Shell’s resources plays portfolio,” Chief Executive Officer Ben van Beurden said in the statement. “We are taking firm actions to improve Shell’s capital efficiency by selling selected assets and making tougher project decisions.”

Van Beurden, who took over from Peter Voser at the start of the year, is accelerating asset disposals and reviewing spending plans to win investor support. He returned Shell’s operations to profit in the Americas this year, where the company is deploying about $61 billion on onshore tight and shale gas and oil projects.

Shell shares rose to the highest since 2005 by the close in London, climbing 2.5 percent to 2,441 pence to make it the best performer on the FTSE 100 Index (UKX) today.

The company expects to buy back as much as $8 billion in shares in 2014 and 2015, of which it has already purchased $1.6 billion in the first half of the year.

Woodside Disposal

“Another outstanding quarter for Shell,” Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, Missouri, wrote in a note. “Its restructuring is continuing to progress well. Results were strong across the board.”

The U.S. gas charge was partly offset by Shell’s disposal of stakes in Australia’s Woodside Petroleum Ltd. and Wheatstone liquefied natural project, the Anglo-Dutch company said. It made a $570 million profit in producing projects in the Americas in the second quarter excluding the impairments, Shell spokesman Jonathan French said by phone.

The company wrote off $2.1 billion in “liquids-rich shale properties in North America” in the second quarter last year.

U.S. natural-gas prices rose 14 percent and oil climbed 9.4 percent in the second quarter from last year on higher demand for fuels.

Energy Earnings

Net income advanced to $5.3 billion from $1.7 billion a year earlier, according to the statement. The company pumped 3.077 million barrels of oil equivalent a day in the quarter, compared with 3.062 million barrels a year earlier.

BP Plc this week said second-quarter adjusted profit rose 34 percent after the London-based company started new projects in the Gulf of Mexico and Angola. France’s Total SA yesterday said earnings fell 12 percent amid record-low production and a slump in refining margins. U.K. explorer BG Group Plc and Italy’s Eni SpA also reported improved earnings today.

In the U.S., Exxon Mobil Corp., the world’s biggest energy company, said second-quarter net income climbed to $8.78 billion from $6.86 billion a year earlier, beating estimates. Houston-based ConocoPhillips today reported profit rose to $2.08 billion from $2.05 billion as output surged.

Russian Sanctions

Shell is monitoring the the situation in Russia after the downing of a Malaysian airliner this month escalated tensions over the country’s involvement in Ukraine. On July 29, the European Union agreed to additional sanctions, restricting the export of equipment to modernize Russia’s oil industry.

The Anglo-Dutch company, which Deutsche Bank AG estimates has about $6.7 billion of oil and gas-producing assets in Russia, is working with OAO Gazprom on the expansion of the Sakhalin 2 LNG project. It’s also exploring for oil with OAO Gazprom Neft in Siberia.

“It’s a bit early to say how this all play out and what the precise consequences for us will be and what sort of postpones we will have to have,” van Beurden said. “I guess it will go on for a little while before this will settle down.”

Van Beurden has already completed about $8 billion in assets sales this year. Shell has set a disposal program of about $15 billion through 2015.

“We have completed a new bottom-up review of our portfolio and strategy,” in Americas’ producing projects, Shell said. “Major divestments of non-core liquids-rich shales positions are now complete.”

In Canada, it agreed to sell its holdings in the Burnt Timber, Hunter Valley and Panther River gas fields and local pipelines to CQ Energy Partnership for about $50 million, Shell said today.

The company also named Harry Brekelmans as projects and technology director, taking over from Matthias Bichsel, with effect from Oct. 1.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Ana Monteiro, Tony Barrett

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