Shell 2Q Profit Up 40 Pct. on Oil Prices

A man waits at an intersection across the street from the gasoline price board at the Shell gas station in San Mateo, Calif., in this Oct. 11, 2004 file photo. Royal Dutch Shell reported a 40 percent rise in second-quarter earnings on Thurs., July 27, 2006. (AP Photo/Jeff Chiu, File) (Jeff Chiu - AP)

Shell's results Thursday beat earnings estimates compiled by Dow Jones, which had predicted a 17 percent rise in earnings, helped by strong refining margins. Shares rose 2.5 percent to 28.05 euros ($35.43) in Amsterdam trading.

At Shell's second-biggest division, which refines oil and sells it to consumers at the pump, profits increased 13 percent to $3.02 billion.

"Higher earnings due to stronger refining margins particularly in the United States, and increased trading profits from a positive trading environment were partially offset by the impact of lower retail marketing margins and reduced refinery utilization mainly in Europe," Shell said.

Shell's 2004-2005 accounting scandal, in which it was forced to repeatedly reduce the size of its proven oil reserves, continued to affect the company's earnings and prospects.

The company said Thursday it had reserved $500 million in the second quarter to pay shareholder class action lawsuits.

Shell has also been spending heavily to restore reserves, planning investments of $19 billion in 2006, and $21 billion in 2007, most of it in exploration and production.

But in 2005, the company pumped more oil than it added to proven reserves, and in Shell's 2005 annual report those reserves stood at around 11.5 billion barrels.

With Thursday's earnings, Shell said it has added "at least" 48 billion barrels of oil to unproven reserves via acquisitions in Canada in the first half of 2006, at a combined cost of some $2.6 billion.

In a conference call, Chief Financial Officer Peter Voser repeated that the company has a "fair prospect" to replace as much as it pumps between 2004-2008 as a whole.

"But we will not be shy to delay projects or even cancel projects because of the economic situation, cost inflation, and delay the recognition of proved reserves if that is the best economic outcome" for the company, he said.

While production in 2006 has been below analysts' expectations, he repeated that Shell's production is expected to rise to 3.5 million to 3.7 million barrels per day in 2007.