Boom Times Over For Shell

Big Oil is not so big anymore. Royal Dutch Shell posted a quarterly loss of $2.8 billion on Thursday, against a net profit of $8.5 billion a year earlier, as sliding oil prices and the global economic slump sapped earnings across nearly all the company's divisions. But even though 2009 will be a tough year for the industry, Shell has time--and production--on its side.

Although oil prices have fallen to around $40 per barrel, from a high of $147.50, in just six months, stripping out much of this extreme fluctuation--along with one-off items and currency effects--shows that Shell's profitability actually beat expectations. On a current-cost-of-supplies basis, free of one-off items, Shell's earnings came in at $4.2 billion, slightly higher than the $4.1 billion expected by analysts.

According to Peter Heijen, an analyst with Theodoor Gilissen, Shell's upstream business performed according to plan, with new production coming in from Australia and the Sakhalin-II project in Russia. Given that the lull in oil prices is not likely to last into 2010, and with Shell planning to make "significant investments" in the company, Heijen recommended buying the stock.

Shares of Royal Dutch Shell (nyse: RDSA - news - people ) ticked down 2 pence (3 cents), or 0.1%, to 17.74 pounds ($25.03), during morning trading in London. Rival BP (nyse: BP - news - people ) ticked up 0.2%. Both stocks outperformed the Dow Jones Euro Stoxx 50 index, which was down 1.1%, with the financial sector and mining companies depressing sentiment.

Shell also delivered a crowd-pleaser by hiking its 2008 fourth-quarter dividend by 11.0%, to 40 cents per share, as well as boosting its 2009 first-quarter dividend by 5.0%, to 42 cents per share.

Production over the year fell by 1.0%, to 3.3 million barrels of oil a day, with the lower oil price taking its toll on earnings. The resilient price of natural gas offset some of the pain: earnings from gas and power rose 55.0% over the year, to $981 million. As for Shell's downstream operations, the lack of demand for products like gasoline predictably knocked earnings down by 34.0%, on a current-cost-of-supplies basis, to $582 million.