Much of the increase was due to an exceptional one-off internal sale of Shell (Petroleum Mining) Company Ltd (SPM) to Shell Exploration NZ Ltd in December 2004, which contributed $829 million to the combined $1.3 billion profit.
The exceptional item comprised proceeds of the SPM sale, including asset sales required under the terms of the Commerce Commission’s approval for Shell to acquire Fletcher Challenge Energy in 2001.
Shell’s upstream business contributed $375.9 million to the total profit last year, almost triple the 2003 profit of $130.9 million. The downstream business’s underlying profitability for 2004 was $106.2 million compared with $63.8 million in 2003.
Shell's upstream profit increase in 2004 was due to an increase in realised prices and a reduction in operating costs. This result was further buoyed by a number of one-off corporate items including the divestment of an overseas subsidiary.
Shell’s New Zealand chairman, Paul Zealand, said that even leaving aside the exceptional item, the result was a very satisfying one for Shell.
“We are delighted that our solid performance has enabled us to produce continued strong returns for our shareholders,” Mr Zealand said.
“In 2004 we continued to expand our commitment to and investment in New Zealand despite the volatile and challenging market we are operating in.
“Shell and its Pohokura joint venture partners took the final investment decision for the Pohokura gas project and an agreement was reached between the Maui joint venture parties and the Crown on the commercialisation of the remaining Maui reserves. These will help provide certainty to New Zealanders about the medium-term availability of these resources,” he said.
“In total, Shell had a capital expenditure programme of $74 million in New Zealand last year, and we are on target to spend in excess of $400 million this year and in 2006,” said Mr. Zealand.
The downstream business’s profit increase over 2003 includes stock holding gains in 2004, as well as a smaller increase in core income and Shell’s share of income from associated companies.
“Given global fluctuations in oil prices driven by uncertainty of supply in 2004, we are very pleased with this result,” said Mr Zealand. Our Downstream Oil business remains a premier provider of oil products, and market leader in retail and commercial.”
SPM, formerly owned by Shell New Zealand Holding Co. Ltd and Shell New Zealand Ltd, holds interests in the Maui, Kapuni, and Pohokura oil and gas fields. It was sold to Shell Exploration NZ Ltd, a member of Shell’s upstream group of companies, to align the legal ownership of the downstream and upstream businesses.
The upstream group now consists of SPM and the companies and businesses acquired from Fletcher Challenge in 2001.
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