Shell's quarter hints at turnaround

Natural gas is carrying Royal Dutch Shell (RDS.A) through turbulent times in the energy sector.

Shares of Europe's largest oil company were flat Thursday even after Shell beat analyst expectations with a 15% increase in second-quarter net profit. Net income jumped to $4.39 billion from $3.82 billion a year earlier, and revenue soared 42% to $90.57 billion.

Earnings per share were 72 cents, up from 62 cents a year earlier. Excluding one-time charges and inventory costs, Shell's profit rose 34% to $4.21 billion (Analysts were expecting $3.99 billion).

But drilling deeper into the numbers shows some areas of concern.Oil production continues to be a problem, with crude output rising by only 1% from a year earlier, Reuters reports. Oil was only 53% of total output, down from 59% a year earlier.

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So Shell relied more on natural gas to offset the troubling oil picture, although natural gas is less profitable than oil. Post continues after video:
Total oil and gas production rose 5% to 3.1 million barrels of oil equivalent per day. That's better than the 2.5% increase analysts were expecting, Dow Jones reported.

"This is a good performance from Shell, despite today's challenging macro-economic conditions," chief executive Peter Voser said in a statement. "We are on track for growth."

So why weren't investors more receptive? Several reasons. The outlook for gas prices is uncertain, Reuters reports, because of the economic downturn and a jump in U.S. shale gas production.

And then there are the lingering effects from BP's disaster in the Gulf of Mexico. There are questions about how Shell's output could be affected by the disruption, one analyst told MarketWatch. It's also unclear when the U.S. government will lift its clampdown on offshore drilling.

Shell was affected more than other companies by the moratorium and idled five floating rigs and two platform rigs in the Gulf of Mexico and Alaska, Bloomberg reported. It took a $56 million charge in the second quarter as a result.

Voser clearly took issue with that, defending deep-water drilling as vital to the global energy supply, AFP reported.

Analysts generally seemed upbeat about Shell's quarterly numbers, saying that the company appears to be back on the right path. Whether it can stay there, however, is unclear.

"It looks like Shell has started to turn a corner," one analyst told Dow Jones.

Voser wasn't gloomy in his future forecast, but he wasn't exactly doing cartwheels either. "The outlook remains uncertain," he said in a statement.

"We continue to see mixed signals in the global economy," he said. "Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure."