Royal Dutch Shell PLC, Europe's largest oil company, reported third quarter net profit rose 6.5 percent as increased production and higher oil prices more than offset a billion dollar charge on the value of oil sand assets in Canada.
Net profit of $3.46 billion was up from $3.25 billion in the third quarter of 2009. Revenues rose to $90.7 billion from $75 billion, the company said Thursday.
"Our results have rebounded substantially from year-ago levels, with improved earnings and cash flow, underpinned by a 5 percent increase in oil and gas production," said Chief Executive Peter Voser in a statement. "This is a better performance from Shell, achieved despite continued difficult industry conditions in refining and natural gas markets."
Shell took net charges of $1.41 billion for asset impairments as part of an annual review, compared to $371 million in gains in the same period a year ago.
Asked to specify these items, Chief Financial Officer Simon Henry said on a conference call the company had written off "about a billion dollars" from the value of its BlackRock unit in Canada, purchased for C$2.4 billion in 2006.
BlackRock owns assets in oil sands, a nontraditional source of heavy petrochemicals that Shell and others have begun exploiting in recent years. Henry said the net charge figure also included a writedown of unspecified size in the value of Shell's refining assets, offset by gains on derivative contracts and asset swaps.
Shell said that stripping out one-off items in both years, earnings would have risen 88 percent to $4.93 billion from $2.62 billion.
U.S. rival ConocoPhillips reported Wednesday its third quarter profit doubled, while ExxonMobil, the biggest major integrated oil company, is due to report later Thursday.
Shell's shares rose 0.7 percent to euro22.82 in Amsterdam.
Evolution Securities analyst Richard Griffith, who rates shares a Buy, said the results were ahead of consensus.
Shell's heavy investment and cost-cutting program is starting "to deliver volume growth and lower costs," he said in a note on earnings. "It is still early days though as the full impact will not be felt until 2013."
CFO Henry said Shell will continue to suffer from fallout resulting from BP PLC's disaster in the Gulf of Mexico, despite the recent lifting of the U.S. drilling moratorium. He said Shell will miss out on a planned production increase of around 40,000 barrels per day in 2011.
"We can't drill the well, so we can't bring the production up," he said. "Maybe we can catch up a bit next year, but we can't count on that."
Shell has been trying to reverse a decade-long slide in production by investing heavily in new capacity. The company produced 3.06 million barrels of oil and equivalents per day in the third quarter, up 5 percent from a year ago, as the fifth of thirteen new production projects the company plans to open this year and next came on line.
Shell reported third quarter production earnings doubled to $3.15 billion from $1.54 billion, helped by a rise of around 12 percent in oil prices, by its production increase, and by lower costs as it has cut 7,000 jobs from a year ago.
Meanwhile, Shell's earnings from the company's refining and retail operations fell to $325 million from $1.29 billion, due mostly to the one-time charge at refining.
Henry said the company lost "a little less than $100 million" on refining operations in the quarter, compared to a loss of around $450 million in the third quarter a year ago.
"Europe is the weakest" refining market, he said, though U.S. margins also remain under pressure. Shell is seeking to sell 15 percent of its refining capacity.
Analyst Gordon Gray of Collins Stewart, who also rates shares a buy, said results beat expectations because the refining operations had not performed as badly as feared. However he said he was positively surprised by the production increase.
"We had been expecting a strong acceleration of growth in 2011-2012, but only modest growth this year," he said, attributing the increase to a fall in violence in Nigeria.
Shell continues to spend heavily on new investments, with capital spending up 77 percent in the third quarter to $9.55 billion including $5.5 billion on the acquisitions of East Resources in the U.S. and Arrow Energy in Australia.