Under pressure to rebuild investor confidence in the wake of this year’s oil and gas reserves accounting scandal, Royal Dutch/Shell Group on Thursday announced a $2 billion share buyback. The major also reported strong quarterly operating earnings despite a 16% decline in net income.

Net income fell, said the London-based major, partly on a large credit it booked in 1Q2003. Net income was $4.43 billion, down from $5.31 billion a year ago. Revenue in the quarter was up 10% to $76.2 billion, compared with $69.4 billion a year ago. Without the inventory value and a $1.29 billion credit related to last year’s credit, Shell earned $4.25 billion in the first quarter, up 9% over last year’s $3.89 billion.

The share buyback program, which investors had been pressuring the oil giant to undertake, will be enabled by high oil and gas prices, Shell executives said. For the past four months, the company has been under the microscope over its overbooking of worldwide oil and gas reserves, and currently it is under investigation by U.S. and European officials. Since the investigation began, the chairman, chief of E&P and other top executives have been fired or have resigned.

Chairman Jeroen van der Veer, who took over in March, had first resisted the share buyback because he said Shell had other priorities for its excess cash. However, in a statement on Thursday, van der Veer said that it was “good to see that we have continued to deliver satisfactory results and cash generation despite all the issues relating to reserves. We have increased our upstream capital investment program because of higher cost in some of our major projects. We have also switched investment into short-term payback projects in higher margin areas and increased our exploration program for this year. At the same time, current strong oil and gas prices enable us to restart the share buy back program.”

He said that “despite the extraordinary challenges of this quarter, our staff have concentrated on running the business, working hard to deliver operational results and developing the portfolio of assets and opportunities.”

Total hydrocarbon production worldwide in the quarter fell about 3%, reflecting a 3% decrease in oil production and a 4% decrease in natural gas production. In the United States, Shell’s gas production available for sale fell to 1.405 Bcf/d from 1.633 Bcf/d a year ago.

Shell blamed the production losses on divestments in the United States, United Kingdom and Thailand, as well as field declines in the United States and elsewhere. The losses were partly offset by new production in the United States, “mainly from Na Kika,” its Gulf of Mexico discovery.

Quarterly E&P spending in the United States was $276 million, down from $297 million a year earlier. U.S. gas and power spending totaled $5 million, up from $1 million in 1Q2003. Equity liquefied natural gas sales volumes in the quarter totaled 2.51 tons, an 8% increase over last year’s 2.33 tons.

At the end of the quarter, Shell’s debt ratio was 17.8%; its cash and cash equivalents totaled $5.7 billion.

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