Royal Dutch Shell Rides High on $10.9B Profit Raise
Royal Dutch Shell's third quarter 2008 earnings, on a current cost of supplies (CCS) basis, were $10.9 billion compared to $6.4 billion a year ago. Basic CCS earnings per share increased by 74% versus the same quarter a year ago.
Cash flow from operating activities for the third quarter 2008, excluding net working capital movements, was $10.4 billion. Net capital investment for the quarter was $11.2 billion. Total distribution to shareholders, in the form of dividends and share repurchases, was $3.1 billion and gearing was 15.4% at the end of the third quarter.
The sale of the BEB Erdgas und Erdoel GmbH (Shell share 50%) gas transport business in Germany was closed, increasing the third quarter 2008 earnings by some $1.4 billion.
A third quarter 2008 dividend has been announced of $0.40 per share, an increase of 11% over the US dollar dividend for the same period in 2007.
Royal Dutch Shell Chief Executive Jeroen van der Veer commented, "We delivered satisfactory earnings and operating performance in the third quarter of 2008. We are watching the world economic situation closely. Shell is robust across a wide range of energy prices. Our strategy remains to pay competitive and progressive dividends, and to make significant investments in the company for future profitability."
KEY FEATURES OF THE THIRD QUARTER 2008
- Third quarter 2008 CCS earnings were $10,903 million or 71% higher than in the same quarter a year ago.
- Third quarter 2008 reported income was $8,448 million or 22% higher than in the same quarter a year ago.
- Oil Products earnings reflected some $400 million of non-cash gains related to fair value accounting of commodity derivatives. In addition Gas & Power earnings reflected non-cash gains of some $400 million related to fair value accounting of commodity derivatives associated with long-term contracts.
- Basic CCS earnings per share increased by 74% versus the same quarter a year ago.
- Total cash returned to shareholders in the form of dividends and share repurchases in the third quarter 2008 was $3.1 billion.
- Cash flow from operating activities, excluding net working capital movements, was $10.4 billion compared to $9.9 billion for the same quarter last year. Including net working capital movements, cash flow from operating activities was $12.6 billion compared to $9.1 billion in the third quarter 2007.
- Capital investment for the third quarter 2008 was $13.2 billion, including an amount of $5.0 billion related to the acquisition of Duvernay Oil Corp. (“Duvernay”). Net capital investment (capital investment, less divestment proceeds) for the third quarter 2008 was $11.2 billion.
- Return on average capital employed (ROACE), on a reported income basis (see Note 3), was 26.3%.
- Gearing (see Note 5) was 15.4% at the end of the third quarter 2008 versus 12.1% at the end of the third quarter 2007.
- Oil and gas production, including oil sands bitumen production, for the third quarter 2008 was 2,931 thousand barrels of oil equivalent per day (boe/d), compared to 3,137 thousand boe/d in the same quarter last year. Production when compared to the third quarter 2007 was reduced by some 120 thousand boe/d due to hurricane impacts in the Gulf of Mexico, USA and a planned maintenance turnaround in the UK North Sea related to the shutdown of the St. Fergus gas processing facilities. Excluding these factors and the impact of divestments and production sharing contracts (PSC) pricing effects, production was 1% lower than the same quarter last year.
- Liquefied Natural Gas (LNG) sales volumes of 3.10 million tonnes were 6% lower than in the same quarter a year ago.
SUMMARY OF IDENTIFIED ITEMS
Earnings in the third quarter 2008 reflected the following items, which in aggregate amounted to a net gain of $2,063 million (compared to a net gain of $265 million in the third quarter 2007), as summarised in the table below:
- Exploration & Production earnings included a gain of $575 million, reflecting a gain from divestments of $347 million, a gain of $167 million related to the mark-to-market valuation of certain UK gas contracts, a tax credit in Canada of $22 million and a gain from a pension accounting adjustment of $39 million. Earnings for the third quarter 2007 included a net gain of $130 million.
- Gas & Power earnings included a net gain of $1,368 million, reflecting a gain from a divestment of $1,395 million, a gain of $33 million related to the mark-to-market valuation of certain gas contracts and a gain from a pension accounting adjustment of $7 million, which were partly offset by an impairment charge of $67 million. Earnings for the third quarter 2007 included a net charge of $4 million.
- Oil Sands earnings included a gain of $25 million related to a tax credit.
Third quarter Exploration & Production segment earnings were $5,501 million compared to $3,327 million a year ago. Earnings included a gain of $575 million related to identified items, compared to a net gain of $130 million in the third quarter 2007.
Earnings compared to the third quarter 2007 reflected the benefit of higher oil and gas prices on revenues, which was partly offset by lower production volumes, particularly in the USA as a consequence of hurricane impacts, higher exploration expenses and higher royalty expenses.
Global liquids realisations were 57% higher than in the third quarter 2007, compared with marker crudes Brent and WTI increases of 54% and 57% respectively. Global gas realisations were 48% higher than a year ago. Outside the USA, gas realisations increased by 45% whereas in the USA gas realisations increased by 66%.
Third quarter 2008 production (excluding oil sands bitumen production) was 2,854 thousand barrels of oil equivalent per day (boe/d) compared to 3,055 thousand boe/d a year ago.
Crude oil production was down 10% and natural gas production was down 2% compared to the third quarter 2007. Production, compared to the third quarter 2007, was impacted by some 120 thousand boe/d as a consequence of the hurricanes in the USA Gulf of Mexico and planned maintenance turnarounds in the UK North Sea related to the shutdown of the St. Fergus gas processing facilities.
Production compared to the third quarter 2007 included additional volumes principally from Ormen Lange (Shell share 17%) in Norway, Changbei (Shell share 50%) in China, West Salym (Shell share 50%) in Russia, F13W (Shell share 50%) and M3S (Shell share 70%) in Malaysia, Stybarrow (Shell share 17.1%) in Australia, Champion West Phase 3B/C (Shell share 50%) in Brunei, Starling (Shell share 28%), Caravel (Shell share 71%), Shamrock (Shell share 100%) and Curlew C (Shell share 100%) in the United Kingdom and Deimos (Shell share 71.5%) in the USA.
Third quarter portfolio developments
In Canada, Shell completed the acquisition of Duvernay, which is a Canadian tight gas company, for $5.5 billion. During 2008 Shell has also acquired significant additional acreage in the Montney gas play, in areas adjacent to Duvernay's positions, bringing Shell's total spend on tight gas acreage in the area to $6.2 billion in 2008. Shell estimates that this combined portfolio of approximately 2 thousand square kilometres contains discovered gas resources of some 1 billion boe, with significant additional exploration potential.
In Australia, Shell concluded the agreement with Arrow Energy Ltd. to jointly develop projects to extract clean-burning natural gas from coal deposits.
In the UK, Shell announced the start-up of the Curlew C field (Shell share 100%), the fourth North Sea field brought on stream during 2008. Together, these fields have an expected aggregate peak production capacity of some 30 thousand boe/d (Shell share).
In the Netherlands, Shell, through its joint venture Nederlandse Aardolie Maatschappij BV (Shell share 50%), signed Sales and Purchase Agreements for some euro 1.1 billion for the sale of assets situated along the NOGAT pipeline, covering exploration, production and transportation of oil and gas. The transaction is subject to regulatory approvals and third party consents.
In the USA Gulf of Mexico deepwater, Shell concluded the sale of its interest in the Big Foot prospect (Shell share 12.5%), for some $0.4 billion.
Also in the USA, a 30 thousand boe/d water injection project commenced at the Ursa/Princess field (Shell share 45%). The project is expected to continue for the next 30 years, extending the life of the field by some 10 years.
Third quarter Oil Sands segment earnings were $371 million compared to $183 million in the same quarter last year. Earnings included a gain of $25 million related to an identified item.
Earnings compared to the third quarter 2007 reflected the impact of higher oil prices on revenues, which was partly offset by lower production volumes, higher operating costs and higher royalty expenses.
Bitumen production decreased by 6% compared to the same quarter last year. Upgrader availability was 96% compared to 90% in the same quarter last year.
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