The Royal Dutch/Shell Group of Cos. more than doubled its fourth-quarter net income on the back of soaring oil and gas prices, but the strong results were tempered by the company's announcement Thursday that it is cutting oil reserves for the fifth time in just over a year.
The Anglo-Dutch company said it was reducing its proven energy reserves by 1.4 billion barrels for 2003 — substantially more than the 900 million barrels expected by analysts.
The cut ends a yearlong probe that has already reduced reserves — the company's most precious asset — by almost a quarter after Shell overstated them.
The scandal cost the company almost $150 million in fines imposed by U.S. and British regulators and led to the sacking of three senior executives.
"2004 was a year of extremes, with the reserves recategorization on one hand and record net income and cash generation on the other," said Chief Executive Jeroen van der Veer.
Shell shares fell 1.5 percent to 472.25 pence ($8.90) on the London Stock Exchange, while Royal Dutch shares dropped 1.3 percent to 45.62 euros ($59.40) on the Euronext exchange.
Shell reported net income for the three months ended Dec. 31 of $4.5 billion, up from $1.9 billion in the same period a year ago.
Adjusted earnings on a current cost of supplies basis — a measurement that strips out the fluctuating value of Shell's oil and gas inventories — rose to $5.1 billion from $1.7 billion in 2003.
Shell attributed the results to strong refining margins and high oil prices during the quarter. Oil futures in New York hit a peak of $55.17 a barrel in late October.
Fourth-quarter sales rose 42 percent to $95.6 billion from $67.3 billion.
Full-year net profit was $18.5 billion, up from $12.5 in 2003. Sales increased 28 percent to $337 billion from $264 billion.
However, the company said it had replaced only 15 percent to 25 percent of the oil it pulled from the ground in 2004. Rivals such as Britain's BP PLC and U.S. giant Exxon Mobil Corp. have reserves replacement ratios of more than 100 percent.
Shell has announced a string of initiatives to improve accountability and performance after the reserves scandal, including plans to merge its British and Dutch holding companies after nearly 100 years of separate operations.
Last month, it said it was hiring more than 1,000 engineers to strengthen the unit at the center of the reserves crisis.
Shell added that it expected to pay at least $10 billion in dividends in 2005 and will use strong levels of cash generation to restart its share buyback program, with an anticipated return to shareholders of up to $5 billion.