Shell's 3Q Profits Plunge from Year-Ago Levels

  • Royal Dutch Shell's third quarter 2009 earnings, on a current cost of supplies (CCS) basis, were $3.0 billion compared to $10.9 billion a year ago. Basic CCS earnings per share decreased by 72% versus the same quarter a year ago.
  • Cash flow from operating activities for the third quarter 2009 was $7.3 billion, and excluding net working capital movements, was $7.7 billion.
  • Net capital investment for the quarter was $7.4 billion. Total dividends paid to shareholders during the third quarter 2009 were $2.7 billion.
  • Gearing at the end of the third quarter 2009 was 13.7%.
  • A third quarter 2009 dividend has been announced of $0.42 per share, an increase of 5% over the US dollar dividend per share for the same period in 2008.

Royal Dutch Shell Chief Executive Officer Peter Voser commented, "Our third quarter results were affected by the weak global economy. Upstream and Downstream profitability has been sharply reduced compared to year-ago levels. We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery. Despite Shell's good operating performance in this difficult environment, we have embarked on an ambitious program of stringent measures to further improve our performance."

"We continue to focus on improving our competitive cost position, simplifying Shell, and increasing personal accountabilities. The Transition 2009 program, which I announced earlier this year, is progressing well, and will be completed by the end of 2009. Some 5,000 employees are leaving Shell as a result of these changes. This represents around a 10% reduction in employees in the redesigned divisions and corporate functions."

"We have reduced operating costs by some $1.0 billion in the first nine months of 2009 compared to the same period in 2008. This reduction excludes the impact of exchange rate movements and non-cash pension costs."

"I am pleased with the portfolio progress in the third quarter. In Russia, production ramp-up of the Sakhalin II LNG project has been achieved ahead of schedule. In Australia, we have launched the Gorgon project, which will supply global LNG markets for decades to come."

Voser concluded, "Our strategy remains on track, although the near-term industry outlook remains challenging. We are taking steps to improve our performance, to bridge the company, and our shareholders, into a period of significant growth in the coming years."

Third quarter portfolio developments

In Australia, Shell and its partners took Final Investment Decision (FID) for the Gorgon LNG project (Shell share 25%). Gorgon will supply global gas markets to at least 2050, with capacity of 15 million tonnes (100% basis) of Liquefied Natural Gas (LNG) per year and a major carbon capture and storage (CCS) scheme.

Shell has announced a Front-End Engineering and Design (FEED) study for a Floating Liquefied Natural Gas (FLNG) project, with the potential to deploy these facilities at the Prelude offshore gas discovery in Australia (Shell share 100%).

In the USA, Gulf of Mexico, Shell participated in an oil discovery at the Vito well (Shell share 55%), in sub-salt Miocene reservoirs. In offshore western Australia, Shell participated in the Achilles gas discovery (Shell share 25%). In the North America Haynesville and Groundbirch tight gas areas there is ongoing encouragement from exploration and appraisal well test results.

In Canada, the Government of Alberta and Government of Canada jointly announced their intent to contribute $0.8 billion of funding towards the Quest CCS project. Quest, which is at the feasibility study stage, could capture CO2 from the Athabasca Oil Sands Project at the Scotford Upgrader, for underground storage.

In Russia, the Sakhalin II project (Shell share 27.5%) achieved peak production of some 400 thousand barrels of oil equivalent per day (boe/d), and successfully ramped up production at the two LNG trains, ahead of schedule.

Key features of the THIRD quarter 2009

  • Third quarter 2009 CCS earnings were $2,990 million, 73% lower than in the same quarter a year ago.
  • Third quarter 2009 reported earnings were $3,247 million compared to earnings of $8,448 million in the same quarter a year ago.
  • Basic CCS earnings per share decreased by 72% versus the same quarter a year ago.
  • Cash flow from operating activities for the third quarter 2009 was $7.3 billion, compared to $12.6 billion in the same quarter last year. Excluding net working capital movements of $0.4 billion, cash flow from operating activities was $7.7 billion in the third quarter 2009, compared to $10.4 billion for the third quarter 2008 on the same basis.
  • Total dividends paid to shareholders during the third quarter 2009 were $2.7 billion.
  • Capital investment for the third quarter 2009 was $7.8 billion. Net capital investment (capital investment, less divestment proceeds) for the third quarter 2009 was $7.4 billion.
  • Return on average capital employed (ROACE), on a reported income basis (see Note 3), was 4.9%.
  • Gearing was 13.7% at the end of the third quarter 2009 versus 6.0% at the end of the third quarter 2008.

Upstream

  • Oil and gas production for the third quarter 2009 was 2,926 thousand boe/d, in line with the same quarter last year. Underlying production increased, compared to the third quarter 2008, with new field start-ups and the continuing ramp-up of fields more than offsetting the impact of field declines.
  • LNG sales volumes of 3.49 million tonnes were 13% higher than in the same quarter a year ago.

Third quarter Upstream earnings were $1,543 million compared to $8,647 million a year ago. Earnings included a net charge of $123 million related to identified items, compared to a net gain of $2,368 million in the third quarter 2008.

Upstream earnings compared to the third quarter 2008 reflected the impact of significantly lower oil and gas prices. These impacts were partially offset by increased gas sales volumes, including the effect of the successful start-up of the Sakhalin II project, and lower royalty and tax expenses compared to the third quarter 2008.

Third quarter 2009 oil prices increased from second quarter 2009 levels. However mainly due to contractual time lag effects the third quarter 2009 global natural gas realisations remained similar to second quarter 2009 levels. A generally weak environment for natural gas marketing and trading activities also affected the third quarter 2009 earnings.

Global liquids realisations were 43% lower than in the third quarter 2008. Global gas realisations were 42% lower than a year ago. In the Americas, gas realisations decreased by 64% whereas outside the Americas, gas realisations decreased by 29%. LNG realised prices compared to the third quarter 2008 decreased following trends in LNG price markers.

Third quarter 2009 production was 2,926 thousand boe/d compared to 2,931 thousand boe/d a year ago. Crude oil production was down 2% and natural gas production increased by 3% compared to the third quarter 2008.

Underlying production, compared to the third quarter 2008, increased by some 180 thousand boe/d from new field start-ups and the continuing ramp-up of fields over the last 12 months, more than offsetting field declines.

LNG sales volumes of 3.49 million tonnes were 13% higher than in the same quarter a year ago. Volumes reflected the ramp-up in sales volumes from the Sakhalin II LNG project and Train 5 at the North West Shelf project, which were partly offset by lower volumes from Nigeria LNG and reduced Asia Pacific LNG demand.
 

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