updated 10/28/2004 7:52:47 AM ET 2004-10-28T11:52:47

The Royal Dutch/Shell Group of Cos. unveiled plans Thursday for its two holding companies to merge after nearly a century, a response to a scandal over its downgrading of oil reserves, and said third-quarter earnings doubled.

Shell's plan to simplify its corporate structure came after the company admitted in January it had overestimated its most precious asset, proven oil reserves. It has reduced the total by 23 percent, or 4.47 billion barrels since then, and said Thursday it may still have to reduce estimates by another 900 million barrels.

The Royal Dutch/Shell Group businesses have been managed as a unit since 1907, but it is owned by two parents, Shell Transport & Trading Co Ltd., which holds 40 percent, and Royal Dutch Petroleum Co., which holds 60 percent.

Under Thursday's proposal, those two parents will merge and form the supervisory board of the company. It will be named Royal Dutch Shell PLC, and based in London _ but with its physical headquarters and tax home in The Hague, Netherlands.

If the deal is approved by shareholders, they will receive shares in the new, single company on a one-for-one basis.

The current chairman of the Royal Dutch/Shell Group's board of managers, Jeroen van der Veer, will continue as the new company's chief executive.

"This is the end of 60:40, we become one company with one share," Van der Veer said. "There is one set of directors, one chief executive, one person who has to take full accountability."

The company said net income for the third quarter rose to $5.4 billion from $2.45 billion. Sales were $89.5 billion, up 35 percent.

Shell benefited from rising oil and chemicals prices in the third quarter and reported strength in all of its biggest businesses.

Profits rose 18 percent at its refining and development arm to $2.41 billion and profits from refining and gas stations nearly doubled to $1.56 billion from $880 million, reflecting higher margins.

Its petrochemicals division earned $577 million, up from $30 million a year ago, as an Asia-driven rebound in demand for raw materials boosted both volumes and margins.

The Royal Dutch shares rose 2.4 percent on the Euronext exchange, while Shell Transport shares were up 2.7 percent on the London Stock Exchange.

"You have to realize we have tail winds of high oil and gas prices," Van der Veer said. "But we also have many good performances by our people and you can see that ... (in areas of operations) that have it difficult with such a high oil price."

Van der Veer said the company's review of reserves is still not complete, and it may have to adjust estimates by another 900 million barrels. He said the effort to reach a final number on the reserves adjustment was "not a very simple exercise, as came out today again. But we are determined to get this reserves issue behind us."

Reserves are an oil company's most valuable asset, and the downgrade was both a shock to investors and an apparent violation of accounting rules. Shell eventually paid around $150 million in fines to regulators in the United States and Britain and promised to reform its reporting system.

In Shell's other operations reporting Thursday, its gas and power arm earned $272 million compared to $65 million last year.

Shell said it produced 3.6 million barrels per day in the quarter, about flat from last year, but said full-year production will end up at 3.7 million to 3.8 million barrels per day.

Oil prices have soared in the past year, with futures contracts for crude oil currently above $52 per barrel, though off record highs.

Over the first nine months of the year, the company's net income rose 33 percent to $14.1 billion from $10.6 billion a year earlier. Sales were up 23 percent to $246.1 billion.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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