Royal Dutch Shell PLC, Europe's largest oil company, on Thursday reported booming profits of $8.78 billion in the first quarter, up 60 percent from a year ago thanks to higher oil prices as well as gains on asset sales and improving refining operations.
With gas prices at the pump approaching $4 per gallon in U.S. and countries around the world seeking to reduce budget deficits, Chief Financial Officer Simon Henry said the company was worried about higher taxes _ and it will plan its future investments accordingly.
"It is a factor of the business we are in. When the prices go up, not just the governments but suppliers often look for a share of the additional revenues," he said on a conference call.
Shell's net profit was up from $5.48 billion in the same quarter a year earlier, while revenues rose 28 percent to $110 billion.
Simon said higher taxes and reduced breaks in Britain for decommissioning rigs might cost the company up to $900 million next year, and the company would likely cancel several small gas projects in the North Sea.
U.S. President Barack Obama wants to cut tax breaks for oil companies, an idea popular with many consumers, but opposed by Republicans who say the country must encourage investment in domestic production to reduce U.S. reliance on foreign oil.
Henry said current pump prices are higher than warranted by the supply of oil, but he couldn't say when they may begin to fall.
"It's a tighter market than it was, partly because of the loss of production in Libya which supports high-ish prices. Not necessarily today's level though," he told reporters in a conference call.
Shell said Thursday it produced 3.50 million barrels of oil per day in the quarter, down 2.6 percent from a year ago, due to the sale of assets, notably Shell's share in some developed natural gas fields in Texas.
Without the sales, which contributed a net $635 million to profits, production would have been flat, Shell said.
Production profits were $5.76 billion, up 30 percent, due to the rise in oil prices and asset sales. Global oil prices were up more than 35 percent from a year earlier, but Shell did not have the full benefit of that: about half of the company's production is from natural gas, and gas prices have not risen as sharply.
However, after a decade of declining production, Shell is on track to boost production to 3.7 million barrels per day in 2014, from a low of 3.15 million in 2009.
It has been spending at least $25 billion annually on new infrastructure since 2008, a level it plans to continue, and it has 20 projects expected to come on line or increase production in the coming three years.
Analysts say the company is well-positioned to grow, and shares rose 0.7 percent to euro26.225 in early trading in Amsterdam.
"Start-up of major upstream (production) projects should see enhanced contributions from this area and enable RDS to continue to outperform its peers," wrote Evolution Securities analyst Richard Griffith in a note on the earnings, repeating a Buy recommendation on shares.
BP PLC, Shell's major European competitor, reported first quarter net profit of $7.2 billion on Wednesday. ExxonMobil, the world's largest independent oil company, reports later Thursday.
Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, said Shell's performance contrasted favorably with BP's.
"Whereas BP has had to reorganize its business model and turn its attention to the ongoing fallout from the Gulf of Mexico spill, Shell has continued to power ahead unabated," he said. "Shell is well positioned for future expansion."
CFO Simon said Shell resumed exploration and drilling earlier this month in the Gulf of Mexico under regulations adopted after the Deepwater Horizon blowout and oil spill one year ago. He said Shell already adhered to the new rules and they were unlikely to lead to higher operating costs.
"It's good to be able to get back to work there," he said. Shell hopes to win final approval for exploratory offshore drilling in Alaska next year after a last-minute denial for this year came in December 2010.
The company's first quarter earnings based on the 'current cost of supplies' _ a measure which seeks to strip out one-time costs and changes in the price of oil literally in the pipeline _ were up 41 percent to $6.93 billion, Shell said.
Refining and chemicals sales were up 57 percent to $1.17 billion, on a current cost of supplies basis. Shell said its refining operations benefited from better margins. Demand increased, and Shell used more of its capacity, as the company had less planned and unplanned maintenance of plants.
Arthur Max contributed to this story from Amsterdam.