Royal Dutch Shell bucked an industry-wide trend of falling earnings on Thursday, posting a 20% rise in second-quarter profits as fat refining margins helped outweigh lower output.
Shell said its current cost of supply (CCS) profit, which strips out changes in the value of inventories, rose to $7.556 billion, helped by a non-operating gain of $660 million, partly related to asset sales.
Nonetheless, underlying profits rose 5% to $6.896 billion, beating an average forecast of $6.770 billion given in a Reuters poll of 10 analysts.
It is the eighth straight quarter when the world's second-largest, non-government controlled oil company by market value has beaten analysts' forecasts, suggesting it has turned the corner after difficult years when it admitted overstating reserves and announced multi-billion dollar cost overruns on key fields.
Shell's London-traded A shares closed down 1.6% at 1,937 pence, compared to a 1.7% fall in the DJ Stoxx European oil and gas sector index.
"We will be moving our forecasts higher to reflect the strong headline earnings," Peter Hitchens at Teather & Greenwood said.
Echoing the experience of rivals, the company said production of oil and gas fell 2% to 3.178 million barrels of oil equivalent per day (boepd), in line with analysts' expectations.
The fall was partly due to Nigerian fields being shut in because of security problems and a warm winter in northwest Europe, which hit demand for North Sea gas.
The Hague-based Shell declined to offer any guidance on a restart of the shut in Nigeria operations and Chief Executive Jeroen van der Veer told a conference call with reporters that output for the year would be at the lower end of the company's 3.3-3.5 million boepd target range.
Shell's profits compare with big drops in underlying second-quarter earnings at BP, Italy's ENI SpA and Spain's Repsol. Larger rival Houston-based Exxon Mobil posted a 1% drop in net income on Thursday.
Executives say the streamlining of the company's structure two years ago, merging independent Dutch and British units, has removed shackles from the company's performance, speeding up decision-making and helping efficient management of projects.
In the second quarter, Shell also benefited from having one of the biggest refining operations in the business, as crude processing margins hit near-record levels.
Earnings at Shell's downstream refining and fuel marketing division jumped 42%, with retail margins also firmer.
High oil prices, which averaged $63.92 per barrel in the quarter, underpinned the results.
Chief Executive van der Veer warned higher industry costs could keep pressure on profits as companies which provide products and services to the majors continue to raise prices.
This has helped some of the largest oil service companies, U.S.-based Schlumberger, France's Technip and Italy's Saipem, to this week report second quarter profit increases of around 50 percent compared to the same period in 2006.
However, Chief Financial Officer Peter Voser denied Shell's suppliers were taking advantage of a tight market.
"Their margins are not going up phenomenally," he told a news conference in London.
Van der Veer restated Shell's strategy of expanding into unconventional oil projects and projects which require complex infrastructure such as liquefied natural gas (LNG) plants, despite some investors worrying this move will hit margins.
Output from Shell's main unconventional oil source -- Canadian oil sands, tarry deposits from which crude can be extracted -- doubled in the second quarter and van der Veer said the company would start to break out profits for this unit separately in future.