Shock wipes £3bn off Shell

SHAREHOLDERS stripped nearly £3bn from Shell's market value after the world's third-largest oil company posted a sharp fall in profits and warned refining conditions were the 'worst in living memory'.

Profits for the second quarter fell 38% to $2.2bn (£1.4bn), at the lower end of City forecasts. Shell blamed weak refining and natural gas returns. Volumes rose 8%, but most of that was due to its acquisition of independent operator Enterprise Oil.

The result was an improvement on the group's first quarter when oil prices were weaker. But chairman Phil Watts said the performance was below the company's aspirations: 'We can do better, and I am determined that we will do better...we have more work to do on costs and capital efficiency.' He said refining conditions were the 'worst in living memory'.

Analysts said production growth was much lower than expected. 'The market was hoping they would have closed the gap on BP but they seem to be back into their pattern of disappointments,' said Banc of America Securities analyst Richard Savage.

Shell had indicated at the end of the first quarter that volumes would start growing by more than the 1% recorded for that period. But it said today they had risen just 1% in the latest three months, excluding Enterprise.

Shell added: 'The outlook for crude prices remains dependent on the pace of US economic recovery and on developments in the Middle East.' The shares fell nearly 7%, or 30 1/2p, to 405 1/2p, also hit by the wider sell-off triggered by heavy early losses on Wall Street.

Analysts had also expected a sharper profit turnaround at some of Shell's US refining and marketing operations and said refining margins around the world had failed to match the improvement unveiled by BP earlier this week.

Profit from Shell's exploration and production arm fell from $2.2bn to $1.8bn as lower prices more than offset a rise in volumes. Weaker prices were also behind the slump in profits from $390m to $149m at the gas and power division.

The firm raised its interim dividend to 5.95p a share from 5.85p.