LONDON (Reuters) - Royal Dutch/Shell Group unveiled another, bigger-than-expected, cut in oil reserves on Thursday but tempered the news by announcing record profits and plans for higher dividends and share buybacks.
Surging oil prices and strong refining margins enabled Shell to report fourth-quarter profits of $5.127 billion on a current cost of supply basis, the measure preferred by analysts.
Full-year profits by this measure were $17.59 billion, or $18.54 billion on a historical-cost basis. Analysts said both figures exceeded any profit ever recorded by a UK-listed company, which Tony Woodley, General Secretary of the Transport and General Workers Union, said argued for the introduction of a windfall tax to curb excessive profits in the oil sector.
Excluding one-off gains of $318 million, the fourth-quarter figure was in line with a Reuters poll of 12 analysts which forecast $4.826 billion.
News of the higher payouts to shareholders cheered investors but Shell's fifth reserves cut in just over a year weighed on the company's stock.
Shell shares were down 1.8 percent at 471-1/2 pence at 5:50 a.m. EST, while Royal Dutch was down 1.39 percent in Amsterdam at 45.55, compared with the European oil and gas sector which was down 0.6 percent.
Some dealers said the share fall was also partly due to profit expectations rising in recent days after U.S. majors Exxon Mobil and ChevronTexaco reported forecast-beating results.
Despite the fall, analysts were pleased that Shell appeared to have adopted a more generous cash-distribution strategy.
It said it would pay dividends of at least $10 billion in 2005, up from $7.2 billion in 2004, and buy back shares worth $3 billion to $5 billion, compared with $1.7 billion in 2004.
"The move to buy back shares and the dividend increase are positive. The writing down of reserves is disappointing but hopefully they've drawn a line under the affair," said Cavendish Asset Management fund manager Paul Mumford, whose portfolio includes Shell shares.
RESERVES TARGETS UNCHANGED
Shell has been struggling to rebuild investor confidence after a reserves over-booking scandal last year that led to the sacking of top management and raised serious concerns about the company's ability to replace the oil it pumps with new finds.
The company said it had completed its reserves review and would restate around 1.4 billion barrels of oil equivalent (boe), worse than analyst expectations of around 900 million.
Chief Executive Jeroen van der Veer said he was confident the company would not have to make further reserves cuts.
"We have taken the steps necessary to close out the reserves issue," van der Veer said.
Nonetheless, he reiterated that his head was on the block over the matter. He said the restatement would have only a minor impact on earnings in recent years.
The company stuck to its target of 100 percent reserve replacement over the period 2004-2008, adding that the biggest impacts would come at the end of this period.
Shell, the world's third-largest oil group by market capitalization, got off to a bad start in 2004, hitting a replacement level of between 45 and 55 percent.
The company also raised its divestment forecast to $12-15 from $10-12 billion for the period 2004-2006, boosting the amount of cash likely to be available to distribute to shareholders. Shell made $7.6 billion in divestments in 2004.
Shell's oil and gas production was in the top end of its previously stated range, at 3.8 million barrels of oil equivalent (boe) per day. Output was 1 percent lower than in 2003, excluding the impact of divestments.
The company expects production in the range of 3.5-3.8 million boe per day over the next two years.
The upstream division was the main driver of Shell's bumper profits but van der Veer said the oil products division also had a "great year."
(Additional reporting by Sudip Kar-Gupta, Gavin Haycock and Louise Heavens in London and Anna Mudeva in Amsterdam)