Shell Increases 3Q Earnings by 88%
Shell reported its third quarter financial and operational results for 2010.
- Royal Dutch Shell's third quarter 2010 earnings, on a current cost of supplies (CCS) basis, were $3.5 billion compared to $3.0 billion a year ago. Basic CCS earnings per share increased by 16% versus the same quarter a year ago.
- Third quarter 2010 CCS earnings, excluding identified items, were $4.9 billion compared to $2.6 billion in the third quarter 2009.
- Cash flow from operating activities for the third quarter 2010 was $9.0 billion.
- Net capital investment for the quarter was $10.3 billion, including the business acquisition of East Resources, Inc. in the USA and the joint acquisition of Arrow Energy Limited in Australia. Total dividends paid to shareholders during the third quarter 2010 were $2.6 billion.
- Gearing at the end of the third quarter 2010 was 19.0%.
- A third quarter 2010 dividend has been announced of $0.42 per ordinary share. With the introduction of the Scrip Dividend Program, effective from the third quarter 2010 interim dividend, eligible shareholders have a choice to receive dividends in cash or in new shares.
Royal Dutch Shell Chief Executive Officer Peter Voser commented, "Our results have rebounded substantially from year-ago levels, driven by some improvement in industry conditions, and Shell's strategy. We are seeing new growth, with improved earnings and cash flow, underpinned by a 5% increase in oil and gas production, a 22% increase in LNG sales and increased downstream volumes. This is a better performance from Shell, achieved despite continued difficult industry conditions in refining and natural gas markets.
We are making good progress on implementing our strategy, with a focus on performance improvement, delivering a new wave of growth, and maturing the next generation of growth options for shareholders, with achievements in all of these themes during the quarter.
With an emphasis on continuous improvement, Shell is driving down costs and improving capital efficiency. We have achieved some $2 billion of asset sales so far in 2010, and announced the disposal of late-life oil and gas positions at Statfjord in Norway, and refining capacity at Heide in Germany during the quarter. Our cash generation from operations continues to improve. We expect some $7-8 billion of asset sales in the 2010-11 timeframe, including exits from non-core refining and marketing positions in Europe and Africa, and rationalization of our tight gas portfolio in North America, following recent acquisitions there."
Turning to growth delivery, Voser commented, "We are in a delivery window for new growth. Our new oil sands mine - Jackpine - started production during the quarter, part of the 100,000 boe/d Athabasca Oil Sands Project Expansion 1. AOSP-1 is the 5th start-up in a sequence of 13 new projects for 2010-11, which will drive us to achieve our cash flow and production targets for 2012.
Shell has continued to make progress with longer term growth options during the quarter, with the final investment decision on two new deep water projects - the 100,000 boe/d Mars B development in the Gulf of Mexico, and Phase 2 of the BC-10 development in Brazil. We have signed a purchase agreement with East Resources, Inc., acquiring tight gas acreage in the USA, bringing our total North America gas potential resources to some 40 tcfe, completed the joint acquisition of Arrow Energy Limited, an Australian CBM-LNG play, and progressed our Brazil retail and biofuels joint venture with Cosan."
Voser concluded, "We are making good progress against our targets, and there is more to come from Shell."
Third Quarter 2010 portfolio developments - Upstream
In Australia, Shell and PetroChina announced the successful completion of their joint acquisition of the Australian coal seam gas company, Arrow Energy Limited.
In Canada, Shell announced the successful start of production of the 100 thousand barrels of oil equivalent per day (boe/d) expansion of its oil sands operations in Canada (Shell share 60%). Production from the new Jackpine Mine combined with existing production from the Muskeg River Mine will feed the Scotford Upgrader, which processes the oil sands bitumen - heavy oil - for refined oil products. Construction for the expansion of the Scotford Upgrader is underway, and will come on-stream in early 2011 which will allow AOSP's synthetic crude production to rise to the new 255 thousand boe/d (Shell share 60%) production capacity.
In Norway, Shell agreed to sell its interests in the Statfjord field and associated satellite fields in the Norwegian sector of the North Sea, with a Shell share production of some 13 thousand barrels of oil equivalent per day (boe/d), for some $0.2 billion.
Shell completed a strategic trade to acquire additional interests in Gabon and in the UK North Sea, in return for its interest in a pair of Norwegian offshore fields.
In Saudi Arabia, Shell has entered into the second contract period for the South Rub Al Khali Company Limited (SRAK) joint venture (Shell share 50%). SRAK will now move forward with the appraisal of the Kidan sour gas fields.
In the USA, Shell signed a purchase agreement with East Resources, Inc., a private company, with a primary focus on tight gas acreage in the Marcellus shale, in the northeast USA. A multi-well appraisal program is now on the way, with encouraging initial results.
Also in the USA, Shell announced the final investment decision for the Mars B project (Shell share 71.5%), a 100 thousand boe/d tension leg platform in the Gulf of Mexico. In Brazil, Shell also announced the final investment decision on the BC-10 Phase 2 project (Shell share 50%).
- Oil and gas production for the third quarter 2010 was 3,058 thousand boe/d, 5% higher than in the third quarter 2009.
Production for the third quarter 2010 excluding the impact of divestments, production sharing contracts (PSC) pricing effects and OPEC quota restrictions was 7% higher compared to the same period last year.
Underlying production in the third quarter increased by some 180 thousand boe/d from new field start-ups and the continuing ramp-up of fields, more than offsetting the impact of field declines.
- LNG sales volumes of 4.26 million tonnes in the third quarter 2010 were 22% higher than in the same quarter a year ago.
Summary of identified items
Earnings in the third quarter 2010 reflected the following items, which in aggregate amounted to a net charge of $1,412 million (compared to a net gain of $371 million in the third quarter 2009), as summarized in the table below:
- Upstream earnings included a net charge of $284 million, reflecting asset impairments and write-offs of $1,442 million, a charge related to the estimated fair value accounting of commodity derivatives (see Note 4), tax charges and provisions, which were partly offset by gains related to portfolio transactions and mark-to-market valuation of certain gas contracts. Earnings for the third quarter 2009 included a net charge of $123 million.
- Downstream earnings included charges of $1,128 million reflecting asset impairments of $873 million, a charge related to the estimated fair value accounting of commodity derivatives and provisions. Earnings for the third quarter 2009 included a net gain of $536 million.
- Corporate earnings and Non-controlling interest for the third quarter 2009 included charges of $42 million.
Third quarter Upstream earnings were $3,153 million compared to $1,543 million a year ago. Earnings included a net charge of $284 million related to identified items, compared to a net charge of $123 million in the third quarter 2009 (see page 5).
Upstream earnings, excluding the impact of identified items, compared to the third quarter 2009 reflected the effect on revenues from improved crude oil and natural gas realised prices and increased production volumes, lower operating costs and lower exploration well write-off expenses which were partially offset by increased production taxes. Earnings also reflected increased LNG sales volumes, improved LNG realized prices and higher dividends received from an LNG joint venture.
Global liquids realizations were 15% higher than in the third quarter 2009. Global gas realizations were 17% higher than in the same quarter a year ago. In the Americas, gas realizations increased by 25%. Outside the Americas, gas realizations increased by 16%.
Third quarter 2010 production was 3,058 thousand boe/d compared to 2,917 thousand boe/d a year ago. Crude oil production was up 3% and natural gas production was up 7% compared to the third quarter 2009. In Nigeria, Shell's share of Shell Petroleum Development Nigeria Company (SPDC) joint venture production increased by 175 thousand boe/d driven by the ramp-up of new projects and improved security conditions.
Underlying production, compared to the third quarter 2009, increased by some 180 thousand boe/d from new field start-ups and the continuing ramp-up of fields over the past 12 months, more than offsetting field declines.
LNG sales volumes of 4.26 million tonnes were 22% higher than in the same quarter a year ago. Volumes improved globally, with major contributions from the Sakhalin II LNG project and Nigeria LNG.
Third quarter Corporate earnings and Non-controlling interest were $43 million compared to $155 million for the same period last year. Earnings for the third quarter 2009 included charges of $42 million related to identified items (see page 5).
Corporate earnings for the third quarter 2010 reflected higher tax credits, which were more than offset by lower currency exchange gains and a lower net interest result compared to the same period in 2009.
Fourth quarter 2010 results and fourth quarter 2010 dividend are scheduled to be announced on February 3, 2011. First quarter 2011 results and first quarter 2011 dividend are scheduled to be announced on April 28, 2011. Second quarter 2011 results and second quarter 2011 dividend are scheduled to be announced on July 28, 2011. Third quarter 2011 results and third quarter 2011 dividend are scheduled to be announced on October 27, 2011. A Shell strategy update is planned for March 15, 2011.
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