Royal Dutch Shell plc, #1 European oil refiner, reported a surprise increase in Q1 income on strong refining revenue, chemical production, and equity portfolio gains. Net profit was up 5.4% to $7.28 billion ($1.15/share). Excluding one-time items, profit was $6.6 billion, way ahead of the $5.61 billion median analyst estimate.

ING analyst Jason Kenney: "These numbers are quite phenomenal," adding the real surprise was in its strong chemical revenues; profit at the unit more than tripled to $480 million. Bloomberg reports Shell is the fourth oil major to report higher profits from refining as U.S. consumers pay close to $3/gallon for gasoline.

Last week BP reported a 17% drop in profits while ExxonMobil saw a 10% jump. The company said it will resume oil production in Nigeria, where supplies have been inhibited because of militant attacks; it is the country's biggest foreign oil producer. Shell's corporate financing arm reported profits of $801 million (up from $227 million last year) due to the "realization of gains on the sale of the equity portfolio held by the group insurance companies."

Oil production was down 6.4% to 3.5 million barrels/day due to lower natural gas production and the Nigerian shutdown. Average selling price was $54.45/barrel vs. $57.39 last year. Shares are up 2% to $72.08 in pre-market trading.

``They've beaten expectations again,'' said Ivor Pether, who helps oversee about $15 billion at Royal London Asset Management. ``The refining business is performing strongly as are chemicals.''

`Exceedingly Robust'

Shell's business model ``looks exceedingly robust for now,'' though concerns persist about ``a handful of key mega projects,'' such as the Sakhalin-2 natural gas export venture in Russia, James Neale, an analyst at Citigroup Inc. in London, said in a note today.

With Shell beating consensus estimates several times in the past two years, Neale said ``the results tend to heighten our suspicions that we have structurally underestimated the cash flow generation of some of the company's assets.''

Higher refining margins and chemical profit more than offset lost oil production from Nigeria. Shell's oil and gas output, including oil sands, was 3.51 million barrels a day last quarter, down 6.3 percent from a year earlier.

Shell's 5.6 percent increase in net income placed it between competitors BP Plc and Exxon Mobil Corp., which last week reported a 17 percent drop and 10 percent gain, respectively.

Shell's London-traded A shares rose 33 pence, or 1.9 percent, to 1,803 pence as of 3:42 p.m. local time. The stock is little changed this year. BP shares are also little changed, while Exxon Mobil is up 4.2 percent.

Lost Output
Since February 2006, Shell's venture in Nigeria has halted output of 477,000 barrels a day, or about half of its average daily production. In March, it shut an additional 187,000 barrels a day of supplies for about four weeks because of a pipeline leak in the Niger Delta.

Shell, the biggest foreign oil producer in Nigeria, plans to increase production to pre-February 2006 levels in the ``coming months'' after completing site inspections and following the presidential elections, Chief Executive Officer Jeroen Van der Veer told reporters on April 5.

``Following an improvement in the security situation, preparations for a restart are under way'' in the western Niger Delta, Shell said today, adding that no firm date could be given for the resumption.

Profit at Shell's exploration and production division, its biggest business unit, fell 6 percent to $3.5 billion, excluding one-time items, because of declining oil and gas prices and lower production.

Lower Prices
U.K. natural gas prices in the first quarter were about a third of their year-earlier levels. Brent crude averaged $58.62 in the period, down 6.4 percent from the same quarter of 2006.

Shell's daily production last quarter was at the top end of a range of 3.3 million barrels to 3.5 million barrels that it expects for the year as a whole, assuming some Nigerian output remains offline for the rest of the year.

``We are guiding toward the lower end of that range and if any Nigerian barrels come back then we could move up,'' Peter Voser, Shell's chief financial officer, told analysts on a conference call.

Profit was helped by a reduction in the company's overall tax rate. Shell spokesman Wim van de Wiel said the tax rate was 35 percent last quarter. The rate fell because Shell had higher profits from the refining business, which typically have a lower tax take than the exploration and production business.

Equity portfolio sales in Shell's insurance business, which raised $404 million, contributed to a net one-time gain of $371 million in the latest quarter.

Share Buybacks
The company plans to buy back more shares ``shortly'' after purchasing half a billion dollars of stock in the first quarter, according to Voser. He said on Feb. 1 he's not a `philosophical believer'' in share buybacks because they haven't delivered the stock gains some investors expected.

The dollar's 3 percent drop against the euro this year, following a 10 percent slide in 2006, ``could impact our earnings because of our European cost base,'' Voser said.

Last year, Shell regained its position as Europe's biggest oil company by market value, as BP faced Alaskan pipeline leaks and the aftermath of the Texas City, Texas, refinery blast.

On April 18, Shell closed Russia's Sakhalin-2 transaction, selling half of its 55 percent stake in the venture to OAO Gazprom for about $4.1 billion. While reducing its holding in Sakhalin, it bought a remaining 22 percent minority stake in Shell Canada for $7.5 billion.

Total SA, Europe's third-largest oil company, is due to report earnings tomorrow.

Bloomberg

GazpromOAO,eNergyBLOG

Jorma Ollila, chairman, Royal Dutch Shell, said: "There has been great progress in our company in recent years. Jeroen's decision today provides clarity, and I am pleased that he will stay on longer, providing valuable continuity and leadership in Shell over the next years."