Shell, BP profits jump on record oil price

Oil giants Royal Dutch Shell and BP beat forecasts to post big rises in first quarter profits yesterday, lifting shares across the sector, as investors bet that oil prices above $100/barrel would be an even bigger bonanza than expected.

Shell, the world's No. 2 non-government-controlled oil company by market capitalisation, said net income, excluding unrealised gains from changes in inventory values, rose 12 per cent to a record $7.8 billion.

Industry No. 3 BP said profits, calculated on the same basis, rose 48 per cent to $6.6 billion.

"It's an eye opener for investors, showing what the high commodity price environment really, really means in terms of earnings for the oil sector," said Paul Andriessen, oil analyst at Fortis Bank in Amsterdam.

Shell's London-listed "B" shares rose 5.1 per cent to 2021 pence by 4:51 a.m. EDT (0851 GMT), while BP's rose 5.2 per cent to 608-1/2 pence.

The DJ Stoxx European oil and gas sector index rose 2.9 per cent, compared to a 0.1 per cent drop in the FTSEurofirst 300 index of top European shares.

The oil majors' core upstream oil and gas production units were the main drivers of the bumper profits, thanks to record oil prices, which averaged almost $100/barrel during the quarter, and strong gas prices in the US and Europe.

Oil and gas production was flat at both companies.

Despite the run-up in oil prices, which hit a new high of almost $120/barrel this week, investors have been slow to reward oil stocks, amid fears of rising costs, stagnant or falling production and a dearth of new oil finds.

Mr Andriessen said yesterday's results should lead to a re-rating of shares across the sector. "This is a trigger," he said.

Other analysts said that in the near term, Shell and BP's results would boost expectations regarding earnings releases due over the next week from other industry players including US majors Exxon Mobil and Chevron, British gas producer BG Group and France's Total.

"The outlook appears to remain strong into the second quarter of this year, with oil prices averaging $107/bbl, and the prospect of further sector earnings upgrades," James Neale, oil analyst at Citigroup, said in a research note.

Almost all BP and Shell's business units performed well, even divisions such as refining and fuel retailing which were expected to be squeezed by difficulties in passing higher crude prices onto consumers.