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Shell Raises Spending, Dividend Plans Despite Quarterly Losses

Undeterred by lower commodity prices that slammed quarterly profits, Royal Dutch Shell sounded positively bullish last week, announcing that it plans to raise dividends and increase capital spending this year.

The European-based major announced a 28% drop in 4Q2008 net profit, which totaled $2.81 billion versus $8.5 billion a year earlier. Shell, like other European producers, also measures net profits on a current cost of supply (CCS) basis, which strips out the changes in the value of inventories. On a CCS basis, quarterly earnings fell 27% to $4.79 billion from $6.7 Billion in the year-ago quarter.

CEO Jeroen van der Veer noted during a conference call that crude oil was trading at levels of five years ago, but operating costs have more than doubled since then.

"That is a hard landing, and it puts a lot of pressure on the industry," van der Veer said. Costs are sure to come down, he said, but he thinks there will be a lag of at least a year to 18 months.

Still, Shell is looking forward. The major plans to keep its policy to pay "competitive and progressive dividends" and it will make "significant" investments to find new reserves, said the CEO.

Shell plans to pay a 42 cent/share dividend in 1Q2009, which would be 5% higher than in 1Q2008. Capital spending for 2009 also is set to rise -- to $31-32 billion -- which would be slightly higher than the $30 billion spent in 2008. The spending hike would balance "Shell's commitments to projects under construction and growth, with the more challenging economic landscape in 2009," the company said.

Chevron Corp. said it plans to keep capital spending flat this year (see related story). Meanwhile, ConocoPhillips has announced it will cut its capital program by 18% and it plans to lay off around 4% of its workforce (see related story).

Even with the increase to its spending program, Shell is postponing some decisions on major investments until costs come down, said van der Veer. Included in the projects to be deferred are Carmon Creek in Canada and Mars B in the Gulf of Mexico. It also has delayed plans to expand its Athabasca oilsands development in Canada.

"Industry conditions remain challenging, and we are continuing the focus on capital and cost discipline in Shell," said van der Veer.

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