Shell posts record $25.4 billion profit

Royal Dutch Shell posted record annual profits, beating forecasts, but analysts warned rising costs, lower oil prices and refining margins and reduced growth targets could curb future earnings.

Shell said its fourth-quarter current cost of supply (CCS) net profit, which strips out changes in the value of inventory, rose 11% to $6 billion (3 billion pounds), thanks to higher output, strong oil prices and profit from disposals. For 2006 as a whole, CCS profit was up 12% at $25.4 billion, a UK corporate record.

Shell's reserves replacement ratio (RRR), the rate at which it matches production with new finds, was 150 percent in 2006, including oil-sands projects, after years of failing to hit the desired minimum 100 percent target. However, other analysts were concerned that Shell was relying on low margin projects to boost reserves. Chief Financial Officer Peter Voser said over half the reserves additions were related to oil sands projects, which involve extracting bitumen from tarry sands and then processing this into crude, and a project in Qatar which converts natural gas into diesel.

- Yet another round of record-setting profits, but look at the last paragraph, particularly the sections highlighted in bold. When the oil majors turn to unconventional sources to boost their reserves like this, we should be getting worried.

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