Shell profits plunge in worst results on record

THE OIL GIANT Royal Dutch/Shell yesterday pledged to keep on growing the dividend despite reporting its worst ever results with profits last year plunging by 95 per cent.

The collapse in net income from $7.75bn to $350m was blamed on a 33 per cent fall in oil prices and a $4.4bn exceptional charge in the final quarter.

Mark Moody-Stuart, the Shell chairman, warned that the company was facing "one of the toughest challenges of its entire history" and admitted bluntly: "What is inescapable is that we have allowed the competition to overtake us."

But he maintained that Shell was "robust" even if the oil price stayed at $10 a barrel for a long time and re-affirmed Shell's commitment to keep dividend increases at least in line with inflation. The payout last year rose by 3.1 per cent to 13.5p.

He also ruled out any change to the group's dual management structure, which has been widely criticised for saddling Shell with a high cost base.

Excluding the $4.4bn charge to cover asset write-downs and 4,000 redundancies, net income for the year still plunged by 36 per cent to $5.1bn. In the final quarter earnings fell by an even steeper 53 per cent to $818m.

This was well below analysts' forecasts and compares with a 30 per cent drop in fourth-quarter profits at Exxon, which is merging with Mobil to overtake Shell as the world's biggest oil company. Shell shares fell 6.75p to close at 332.5p.

Over the year, the Brent crude price averaged $12.75 compared with $19.10 a year earlier and slipped to a low of $9 in December.

Mr Moody-Stuart warned that the business climate remained grim and would remain so for some time with oil prices unlikely to recover, refining margins under pressure and trading conditions in chemicals set to deteriorate further.

But he said that Shell's cash flow remained strong at $14.7bn - two and a half times the level of dividend payments - while Shell also had low- cost oil reserves to exploit in countries such as Nigeria.

"I am confident we can face a $10 a barrel world with equanimity if not great comfort," he added.

Shell is pressing ahead with an $8.5bn plan to develop onshore and shallow water oil and gas fields in conjunction with its partners, Elf, Agip and Exxon. All future investments would be tested for their viability against current oil prices.

Last December Shell put in train a $2.5bn cost reduction programme involving 4,000 job losses, the sale of 40 per cent of its chemicals businesses, including a half stake in the world's biggest polypropylene producer Montell. Shell has also set a target of increasing its return on capital to 14 per cent on the basis of $14 a barrel oil.

At the time Mr Moody-Stuart admitted that Shell's reputation with investors was "one the line".

Yesterday he pledged that they would begin to see the fruit of its restructuring programme this year.

He did not rule out a share buy-back provided Shell could overcome problems caused by the Dutch tax system.

Mr Moody-Stuart said Shell has been in discussions with the Dutch government and he was "mildly optimistic that a solution might be in sight".