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Profits rise as production falls

LAST year was a bumper year for most of the world's oil majors, judging by the profits they announced last month. But a look at the production figures suggest things are not quite as rosy. And with the exception of BP, none of the other majors is willing, yet, to say much at all about its reserves.

In the UK, Shell announced the largest profit recorded by a company listed on a European stock exchange: $27.6bn after tax and the current cost of supplies, compared with $25.4bn in 2006. Shell's chief executive, Jeroen van der Veer, described the results as "satisfactory".

His muted response to the record-busting profits probably reflects the company's worries about its reserves: Shell has delayed the release of those data until later this month. Analysts said the sale of some of the company's interest in Russia's Sakhalin-2 development, as well as trouble in Nigeria – where Shell last month declared force majeure on loadings from the Bonny terminal – made reporting of reserves figures for last year more difficult.

In a separate briefing, Van der Veer indicated that Shell's reserves additions in 2007 would amount to around 1bn barrels – around half of the addition made in 2006. The production figures are also worrying. Shell's output was down by 4% from 2006, to 3.315m barrels of oil equivalent a day (boe/d). It expects production to fall again in 2008 before bigger projects start to come on stream by the end of the decade.

The contrast of big profits, but lower production and reserves growth was evident elsewhere. Surging crude prices also helped ExxonMobil set a profits record of $40.6bn, the highest recorded for a US company and 3% more than in 2006. Yet investors will be concerned about production growth – even at the mighty ExxonMobil. The company said output fell by 1% to 4.18m boe/d. And, like Shell, it said more data about its reserves would be forthcoming.

Chevron's production was also down on 2006, falling by 2% to 2.61m boe/d. And it too offered few specifics about the reserves picture, despite admitting additions would replace only "10-15%" of the oil and gas it had produced during 2007. For the full year 2007, net income was $18.7bn, up by 9% from $17.1bn in 2006.

Bucking the trend was BP, whose weak financial performance sat awkwardly beside better upstream figures. The company reported a 22% fall in its replacement-cost profit in 2007, down to $17.3bn. Chief executive Tony Hayward had sought to prepare investors for poor results, but those reported were even worse than expected. Hayward reiterated that BP would sack employees – 5,000 is the latest number – as part of a cost-cutting drive. Production of 3.82m boe/d, meanwhile, was down by 3% compared with 2006. However, fourth-quarter output was 2% higher, year-on-year, and reserves replacement was above 100%.

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