Shell sees lower income growth due to lower volumes in 1st half

Major oil player Pilipinas Shell Petroleum Corp. likely posted lower income growth figures in the first six months of 2006 on lower volumes and lower margins, as cost of production increased and underrecoveries remained unattended, its top official said.

Pilipinas Shell country chairman Edgar O. Chua said these were major concerns that affected the company’s weak first semester performance. "So far, we are below targets."

In the first semester of 2005, Shell’s net earnings stood at roughly P2.9 billion.

Nonetheless, the Shell executive said he expects the second semester to be better, or enough to bring full-year income growth rate similar to last year.

The orginal income target growth rate for whole of 2006 is the same rate as in 2005, which was at P5.7 billion, or more than doubled from the P2.84 billion booked in 2004.

Based on data from the Securities and Exchange Commission (SEC), Shell achieved a 102 percent year-on-year earnings growth "as the oil company managed to increase sales by only 18 percent, from P126.66 billion in 2004 to P148.86 billion in 2005."

"We still expect to increase sales by double-digits," Chua pointed out.

Lower volumes and margins results due to higher cost of goods were the main factors for the lower-than-expected results, on top of the company’s continued catching up on underrecoveries.

Shell executives, in fact, admitted that they experienced a slight drop in market share.

Meanwhile, optimism in recovering in the second half of the year is also hinged on its introduction of ethanol-based fuel to its petroleum products. "We plan to roll-out the ethanol mix in 50 stations in 2006, mainly in Metro Manila," Chua said.