Shell Reports 48% Increase in 4Q Earnings

Shell reported its fourth quarter and full year 2010 results and fourth quarter interim dividend announcement for 2010.

  • Royal Dutch Shell's fourth quarter 2010 earnings, on a current cost of supplies (CCS) basis, were $5.7 billion compared to $1.2 billion a year ago. Basic CCS earnings per share increased to $0.93 from $0.19 in the fourth quarter 2009.
  • Fourth quarter 2010 CCS earnings, excluding identified items (see page 5), were $4.1 billion compared to $2.8 billion in the fourth quarter 2009.
  • Full year 2010 earnings, on a current cost of supplies (CCS) basis, were $18.6 billion compared to $9.8 billion a year ago. Basic CCS earnings per share increased by 90% versus a year ago.
  • Cash flow from operating activities, excluding net working capital movements, for the fourth quarter 2010 was $6.2 billion, compared to $4.4 billion in the same quarter last year. On the same basis, full year 2010 cash flow from operating activities was $33.3 billion compared to $23.8 billion in 2009.
  • Net capital investment for the quarter was $1.5 billion. Total cash dividends paid to shareholders during the fourth quarter 2010 were $2.0 billion. Some 18.3 million class A Ordinary shares, equivalent to $0.6 billion, were issued under the Scrip Dividend Program for the third quarter 2010.
  • Gearing at the end of 2010 was 17.1%.
  • A fourth quarter 2010 dividend has been announced of $0.42 per ordinary share, unchanged from the US dollar dividend per share for the same period in 2009. The first quarter 2011 dividend is expected to be declared at $0.42 per share.

Royal Dutch Shell Chief Executive Officer Peter Voser commented, "Our 2010 earnings increased substantially from 2009 levels, driven by improving industry fundamentals, and Shell's production growth and cost performance. Our 2010 oil and natural gas production volumes were 3.3 million boe/d, an increase of 5%. LNG sales volumes increased by 25%, with continued growth in Downstream. Fourth quarter and full year 2010 earnings were supported by higher oil prices and chemicals margins. However, our earnings were impacted by weak refining margins, pressure on certain regional natural gas prices, and volatility in Downstream marketing margins as a result of rising oil prices.

"In 2010 Shell made good progress on implementing strategy, improving near-term performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders.

"Shell has a strong focus on continuous improvement, reducing costs, enhancing Shell's operating performance, and rebalancing the portfolio for profitable growth. Underlying costs declined by $2 billion in 2010 compared to 2009, bringing the total underlying cost reduction to some $4 billion for 2009 and 2010 combined, a reduction of some 10%.

"Disposals of $7 billion of non-core assets in 2010 bring total asset sales in the last 5 years to some $30 billion. Year-end balance sheet gearing was 17.1%, comfortably within Shell's 0-30% target range. We have delivered our 2010-11 asset sales targets ahead of schedule. For 2011, asset sales proceeds could reach some $5 billion, including some $2 billion of proceeds from transactions announced in 2010."

Turning to growth delivery, Voser commented, "Shell's industry-leading investment program is laying down firm foundations for our shareholders and our customers in the future. In 2010 we started up 6 key projects in Upstream and Downstream. In Qatar, in early 2011, we achieved first offshore gas production at the Qatargas 4 LNG facility. Major construction is complete, on schedule, at the Pearl Gas-to-Liquids (GTL) plant, and commissioning for start-up is underway as planned.

"These projects underpin Shell's targets for an 11% increase from 2009 to 2012 oil and natural gas production, and enhancement of the Downstream portfolio. This growth will drive a 50-80% increase in cashflow from operations from 2009 to 2012, measured at $60-$80 oil prices. These are ambitious targets, but we are on track," said Voser.

"Shell has made good progress on generating longer-term growth during 2010. Shell took two final investment decisions in 2010 for deepwater projects, the Mars B project in the Gulf of Mexico, USA and BC-10 Phase 2 project in Brazil.

"Shell made $7 billion of acquisitions, and invested $3 billion in exploration activities in 2010. The acquisition of East Resources takes our resources potential in North America tight gas to some 40 tcfe. In partnership with PetroChina, we purchased Arrow Energy, an Australian coal bed methane and LNG player, and entered into new tight gas and coal bed methane acreage in China. Shell and its partners signed contracts to develop the giant Majnoon and West Qurna fields in Iraq. Shell's explorers made 8 discoveries in 2010, in particular the Appomatox discovery in the Gulf of Mexico, with more than 250 million boe resources potential. In Downstream, we progressed a marketing and biofuels joint venture with Cosan in Brazil, and a new 2 million tonnes per year petrochemicals project in Qatar."

Voser commented, "We continue to invest for medium-term growth to create value for our shareholders. I expect 2011 net capital investment of some $25-27 billion, including a $1.6 billion investment for the Cosan joint venture. Dividend will be $0.42 per share for the fourth quarter 2010 and is expected to be $0.42 per share for the first quarter 2011. In 2010 Shell declared dividends of $10.2 billion, the largest in our sector, underlining our commitment to shareholder returns.”

Voser concluded, "We are making good progress against our targets, and there is more to come from Shell.”

FOURTH QUARTER 2010 portfolio developments

Upstream

In Australia, Shell sold 29.18% of its interest in Woodside, or 10.0% of Woodside's issued capital, for a total price of $3.2 billion, reducing Shell's share in the company to 24.27%.

In Norway, production started on the Gjoa field (Shell share 12%), with a production capacity of 107 thousand barrels of oil equivalent per day (boe/d).

In Russia, Shell signed a protocol on strategic global cooperation with Gazprom establishing basic guidelines for the companies' broader collaboration in both the Upstream and Downstream businesses.

In the USA, Shell completed, in January 2011, the sale of a group of predominately mature tight gas fields in South Texas producing some 200 million cubic feet of gas equivalent per day (Shell share), for approximately $1.8 billion.

Also in the USA, Shell agreed to sell its interest in six Gulf of Mexico oil and gas fields for $450 million. These fields are predominately mature and produce some 18 thousand boe/d (Shell share).

During the fourth quarter 2010, Shell participated in 3 exploration discoveries, 2 in Brazil and 1 in Brunei. During 2010, Shell participated in 8 exploration discoveries and 6 successful appraisals, in Australia, Brazil, Brunei, the US Gulf of Mexico and North America gas. Shell also increased its overall acreage position, completing acquisitions of new exploration licenses in China, Egypt, Greenland, Qatar, Russia, Tunisia and the USA.

Downstream

In Finland and Sweden, Shell sold the majority of its refining and marketing businesses, including Shell's 100% owned 87 thousand bbl/d Gothenburg Refinery.

Shell also completed the sale of its Downstream businesses in Gibraltar, Panama, Costa Rica and Laos in separate transactions.

In Qatar, Shell and Qatar Petroleum signed a Memorandum of Understanding to jointly study the development of a major petrochemicals complex that would include a mono-ethylene glycol plant of up to 1.5 million tonnes per annum and other olefin derivatives to yield over 2 million tonnes of finished products.

In Germany, Shell announced, in January 2011, negotiations with potential buyers for the base oil manufacturing and associated refining facilities of its 100% owned Harburg refinery (105 thousand bbl/d capacity), with the intention to convert the remaining portions of the refinery into a distribution terminal for oil products.

Key features of the Fourth quarter AND FULL YEAR 2010

  • Fourth quarter 2010 CCS earnings were $5,696 million, 384% higher than in the same quarter a year ago. Full year 2010 CCS earnings were $18,643 million, 90% higher than in 2009.
  • Fourth quarter 2010 CCS earnings, excluding identified items (see page 5), were $4,110 million compared to $2,774 million in the fourth quarter 2009. Full year 2010 CCS earnings, excluding identified items (see page 5), were $18,073 million compared to $11,553 million in 2009.
  • Fourth quarter 2010 reported earnings were $6,790 million compared to $1,961 million in the same quarter a year ago. Full year 2010 reported earnings were $20,127 million compared to earnings of $12,518 million in 2009.
  • Basic CCS earnings per share increased by 389% versus the same quarter a year ago. Full year 2010 basic CCS earnings per share increased by 90% compared to 2009.
  • Cash flow from operating activities for the fourth quarter 2010 was $5.5 billion, compared to $5.7 billion in the same quarter last year. Excluding net working capital movements, cash flow from operating activities in the fourth quarter 2010 was $6.2 billion, compared to $4.4 billion in the same quarter last year.
  • Full year 2010 cash flow from operating activities was $27.4 billion compared to $21.5 billion in 2009. Excluding net working capital movements, full year 2010 cash flow from operating activities was $33.3 billion compared to $23.8 billion in 2009.
  • Total cash dividends paid to shareholders during the fourth quarter 2010 were $2.0 billion, bringing the total for the full year 2010 to $9.6 billion. During the fourth quarter 2010, some 18.3 million class A Ordinary shares, equivalent to $0.6 billion, were issued under the Scrip Dividend Program for the third quarter 2010.
  • Capital investment for the fourth quarter 2010 was $6.2 billion. Net capital investment (capital investment, less divestment proceeds) for the fourth quarter 2010 was $1.5 billion, bringing the total for the full year 2010 to $23.7 billion.
  • Return on average capital employed (ROACE) at the end of the fourth quarter 2010, on a reported income basis, was 11.5%.
  • Gearing was 17.1% at the end of 2010 versus 15.5% at the end of 2009.

Upstream

  • Oil and gas production for the fourth quarter 2010 was 3,496 thousand boe/d, 5% higher than in the fourth quarter 2009. Full year 2010 oil and gas production was 3,314 thousand boe/d, 5% higher than in 2009.

Production for the fourth quarter 2010 excluding the impact of divestments, production sharing contracts (PSC) pricing effects and OPEC quota restrictions was 8% higher compared to the fourth quarter 2009 (7% for the full year 2010 compared to last year).

Production in the fourth quarter increased by some 160 thousand boe/d (170 thousand boe/d for the full year 2010) from new field start-ups and the continuing ramp-up of fields, more than offsetting the impact of field declines.

  • LNG sales volumes of 4.39 million tonnes in the fourth quarter 2010 were 11% higher than in the same quarter a year ago. Full year 2010 LNG sales volumes were 16.76 million tonnes compared to 13.40 million tonnes in 2009, an increase of 25%.

Downstream

  • Oil Products sales volumes were 6% higher than in the fourth quarter 2009. Chemical product sales volumes in the fourth quarter 2010 increased by 10% compared to the fourth quarter 2009.
  • Full year 2010 Oil Products sales volumes were 5% higher than in 2009. Full year 2010 Chemical product sales volumes increased by 13% compared to 2009.
  • Oil Products refinery availability was 92% compared to 93% in the fourth quarter 2009 (92% for the full year 2010 versus 93% in 2009). Chemicals manufacturing plant availability was unchanged from the fourth quarter 2009 at 95% (94% for the full year 2010 versus 92% in 2009).


Fourth quarter Upstream earnings were $5,097 million compared to $2,536 million a year ago. Earnings included a net gain of $1,657 million related to identified items, compared to a net charge of $226 million in the fourth quarter 2009 (see page 5).

Upstream earnings, excluding the impact of identified items, compared to the fourth quarter 2009 reflected improved realized crude oil and natural gas prices and increased production volumes, and lower depreciation and exploration well write-off expenses. These were partially offset by increased production taxes and lower trading contributions. Earnings also reflected increased LNG sales volumes and improved realized LNG prices, which were partly offset by lower dividends from an LNG venture.

In the Americas, Upstream earnings reflected the effect of improved realized crude oil prices and increased natural gas production volumes. These were more than offset by the significant impacts of lower realized natural gas prices, higher tax expenses, lower trading contributions and higher operating expenses, mainly related to the ramp-up of the Jack Pine Mine at the Athabasca Oil Sands Project (AOSP), ahead of the planned start-up of the expansion of the Scotford Upgrader in 2011.

Global liquids realizations were 15% higher than in the fourth quarter 2009. Global gas realizations were 8% higher than in the same quarter a year ago. In the Americas, gas realizations decreased by 12%, whereas outside the Americas, gas realizations increased by 12%.

Fourth quarter 2010 production was 3,496 thousand boe/d compared to 3,320 thousand boe/d a year ago. Crude oil production was up 2% and natural gas production was up 9% compared to the fourth quarter 2009. In Nigeria, Shell's share of Shell Petroleum Development Nigeria Company (SPDC) joint venture production increased by some 115 thousand boe/d driven by the ramp-up of new projects and improved security conditions.

Production, compared to the fourth quarter 2009, increased by some 160 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 4.39 million tonnes were 11% higher than in the same quarter a year ago, mainly from increased volumes from the Sakhalin II LNG project and Nigeria LNG.

Full year Upstream earnings were $15,935 million compared to $8,354 million in 2009. Earnings included a net gain of $1,493 million related to identified items, compared to a net charge of $134 million in the full year 2009.

Upstream earnings compared to the full year 2009 reflected the significant impact of higher realized crude oil and natural gas prices, increased production volumes and lower depreciation and exploration well write-off expenses. These were partly offset by higher production taxes and lower trading contributions. In addition, earnings reflected increased LNG sales volumes and improved LNG realized prices.

Global liquids realizations were 32% higher than in the full year 2009. Global gas realizations were 2% higher than a year ago. In the Americas, gas realizations increased by 13% and outside the Americas, gas realizations were in line with the full year 2009.

Full year 2010 production increased by 5% to 3,314 thousand boe/d from 3,142 thousand boe/d a year ago. Crude oil production was up 2% and natural gas production increased by 10% compared to the full year 2009 production. In Nigeria, Shell's share of Shell Petroleum Development Nigeria Company (SPDC) joint venture production increased by some 120 thousand boe/d driven by the ramp-up of new projects and improved security conditions.

Production, compared to the full year 2009, increased by some 170 thousand boe/d from new field start-ups and the continuing ramp-up of fields in 2010, more than offsetting field declines.

LNG sales volumes of 16.76 million tonnes were 25% higher than in 2009. Volumes mainly reflected the ramp-up in sales volumes from the Sakhalin II LNG project and increased volumes from Nigeria LNG.

Fourth quarter Downstream CCS earnings were $411 million compared to a loss of $1,762 million in the fourth quarter 2009. Earnings included a net charge of $71 million related to identified items, compared to a net charge of $1,335 million in the fourth quarter 2009 (see page 5).

Downstream CCS earnings compared to the fourth quarter 2009 reflected higher Oil Products marketing earnings, improved refining contributions and higher Chemicals earnings.

Oil Products marketing CCS earnings improved compared to the fourth quarter 2009, mainly reflecting higher retail, lubricants and B2B earnings, lower operating expenses and increased trading contributions. Compared to the third quarter 2010, earnings declined mainly as a result of the impact of rising oil prices on marketing margins.

Oil Products sales volumes increased by 6% compared to the same quarter last year. Excluding the impact of divestments, sales volumes increased by 8%.

Refining CCS results remained under pressure but improved compared to the fourth quarter last year, benefiting from higher realized refining margins globally, higher refinery plant intake volumes and lower operating expenses. Compared to the third quarter 2010, results declined mainly reflecting increased downtime at major refining facilities, including at the catalytic crackers, concentration of planned maintenance activities and currency exchange rate impacts. Refinery availability was 92% compared to 93% in the fourth quarter 2009.

Chemicals CCS earnings compared to the fourth quarter 2009 reflected improved realized chemicals margins, higher chemicals sales volumes, higher income from equity-accounted investments and lower operating expenses.

Chemicals sales volumes increased by 10% compared to the same quarter last year, mainly due to the start-up of the Shell Eastern Petrochemicals Complex in Singapore. Chemicals manufacturing plant availability was unchanged from the fourth quarter 2009 at 95%.

Full year Downstream CCS earnings were $2,950 million compared to $258 million in 2009. Earnings included a net charge of $923 million related to identified items, compared to a net charge of $1,682 million in the full year 2009 (see page 5).

Downstream CCS earnings compared to the full year 2009 reflected higher Oil Products marketing earnings, improved refining contributions and higher Chemicals earnings.

Oil Products marketing CCS earnings improved compared to a year ago, mainly reflecting higher retail and lubricants earnings, and lower operating expenses, which were partly offset by lower B2B earnings and reduced trading contributions.

Oil Products sales volumes increased by 5% compared to 2009. Excluding the impact of divestments, sales volumes increased by 6%.

Refining CCS results improved from the full year 2009, benefiting from higher realized refining margins globally and higher refinery plant intake volumes, mainly in the Asia Pacific region. Refinery availability was 92% compared to 93% in the full year 2009.

Chemicals CCS earnings compared to the full year 2009 reflected improved realised chemicals margins, higher chemicals sales volumes, higher income from equity-accounted investments and lower operating expenses.

Chemicals sales volumes increased by 13% compared to the full year 2009, mainly due to start-up of the Shell Eastern Petrochemicals Complex in Singapore. Chemicals manufacturing plant availability increased to 94% from 92% in the full year 2009.

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