News & Media releases

2nd Quarter Results: Strong Downstream, Exploration and Production Challenges

29/07/2004

The Royal Dutch/Shell Group of Companies today reported second quarter results for 2004 with reported net income of $4.0 billion, an increase of 54% on the same period last year. Higher earnings reflect higher hydrocarbon prices, higher LNG volumes and strong downstream earnings offset by lower hydrocarbon production and charges in Exploration and Production. For the first six months of 2004, net income increased 7% compared to the same period last year.

Jeroen van der Veer, Chairman of the Committee of Managing Directors of the Royal Dutch/Shell Group of Companies, commented:

“The second quarter results show good progress in our downstream businesses, with operational performance improvement, increasing volumes and strong margins. Second quarter earnings on a Current Cost of Supplies (CCS) basis in Oil Products increased by 59% over the same period a year ago and in Chemicals earnings were substantially higher than last year.

“We are attacking the challenges of performance in Exploration and Production where earnings were down by 3% and production was lower than a year ago. Earnings were impacted by exploration write offs, increase in taxes, mark to market losses in the North Sea and increased depreciation including the effect of lower reserves and exchange rates.

“The tailwind in oil prices and good downstream performance has helped us to achieve sound financial results. We work on our portfolio and attack all challenges we face.”

Upstream:

Second quarter 2004 oil and gas production of 3,578 thousand boe per day, was 5% lower than in the same period a year ago. Excluding divestments and the price effect on production entitlements under production sharing agreements, production decreased 2%, reflecting a 2% decrease in oil production and a 1% decrease in gas production.

Our strategic priorities in E&P are to:

Ensure operational excellence in existing assets. Our internal target is that in existing assets we should benchmark in first quartile for unit operating costs and for uptime in comparison with similar assets in the same basins and regions.Adjust our existing asset base and project portfolio. Good progress has been made, with proceeds of $2.4 billion from E&P divestments over the last 18 months.Continue our aggressive programme of exploration and new business development to mature good new business opportunities. Our focus will be on positions where we have a good chance of long-term growth, and sustainable competitive advantage, including LNG, GTL, deepwater, unconventional oil and tight gas. Success in these areas will be key to reserves replacement.Raise our game in project delivery. We have taken vigorous action on Bonga and Sakhalin and are strengthening our project management across the world.Ensure we have a competitive cost structure, against the background of increasing cost pressures in the industry.

The Gas & Power business continues to grow and LNG volumes for the quarter increased by 10% due to strong global demand and operational performance. The market outlook remains one of strong growth and we are well positioned as an industry leader with five more new LNG trains under construction.

Downstream:

Oil Products had a good quarter with CCS earnings of $1.6 billion. This included much stronger performance in the US with better refinery utilisation as well as margins. The rebranding and upgrading of the US retail network is on track.

Chemicals delivered substantially improved results of $371 million. This was driven by stronger demand and increased reliability.

Shell and BASF announced today the review of strategic alternatives regarding their joint venture Basell, a global leader in polyolefins, in which they each hold a 50 percent equity interest. The options being reviewed by the shareholders include the sale of their stakes and an equity market transaction.

Reshaping the portfolio:

The Group continues to reshape its portfolio, with divestments proceeds of more than $2 billion of non-strategic and underperforming assets through the first half of 2004. Capital investment levels for 2004 are still expected to be between $14.5 and $15.0 billion. Significant milestones have been reached in the Gas-to-Liquids project in Qatar, Sakhalin sales contracts, Norway exploration licensing, and the Sinopec retail joint venture in China and downstream retail restructuring in the USA and Europe. We also announced today a review of strategic alternatives for our Chemicals joint venture, Basell.

Structure and governance:

The review of structure and governance of the Group is moving at a good pace. The review includes possible modification to the management structures of the Boards and the Group, improvements to decision-making processes and accountability and enhancing effective leadership for the Group as a whole. Financial and legal advisors have been appointed and the Steering Committee for the review has been in discussions with investors. The results of the review, which may include one or more options, will be published in November 2004.

Key features of the second quarter of 2004 and updated outlook include:

The full quarter 2 2004 results, dividends announcements and an interview with Jeroen van der Veer are available on http://www.shell.com/investor

Ends

Disclaimer statement:
This document contains forward-looking statements as defined in section 102 of the Private Securities Litigation Reform Act of 1995 (section 102), that are subject to risk factors associated with the oil, gas, power, chemicals and renewables businesses. It is believed that the expectations reflected in these statements are reasonable, but may be affected by a variety of variables which could cause actual results or trends to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, the risk of doing business in developing countries, legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.

Cautionary Note to US Investors:
The United States Securities and Exchange Commission (‘SEC’) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions.