New Upstream Projects Boost Shell's Results

Royal Dutch Shell released its first quarter results.

  • Royal Dutch Shell's first quarter 2010 earnings, on a current cost of supplies (CCS) basis, were $4.9 billion compared to $3.3 billion a year ago. Basic CCS earnings per share increased by 48% versus the same quarter a year ago.
  • First quarter 2010 CCS earnings, excluding identified items, were $4.8 billion compared to $3.0 billion in the first quarter 2009, an increase of 60%.
  • Cash flow from operating activities for the first quarter 2010 was $4.8 billion. Excluding net working capital movements, cash flow from operating activities in the first quarter 2010 was $10.4 billion.
  • Net capital investment for the quarter was $6.2 billion. Total dividends paid to shareholders during the first quarter 2010 were $2.6 billion.
  • Gearing at the end of the first quarter 2010 was 17.1%.
  • A first quarter 2010 dividend has been announced of $0.42 per ordinary share.

Royal Dutch Shell Chief Executive Officer Peter Voser commented, "Our results have improved considerably compared with year-ago levels, and our profitability has increased from the low levels we saw in the fourth quarter 2009. This has been driven by higher energy
prices, operational and production performance and Shell's growth programs.

"We are making good progress in improving our near-term performance, delivering a new wave of production growth and maturing next generation project options. Our results reflected the successful ramp-up of our new upstream projects in Russia and Brazil, supporting a 6% increase in our production volumes and a 38% increase in sales volumes, in our industry-leading LNG business.

"We are in a delivery window for new growth. In the Gulf of Mexico, we recently had a successful startup of the 100,000 barrels of oil equivalent per day (boe/d) Perdido spar, and we commenced production at the Shell Eastern Petrochemicals project in Singapore. These two start-ups are part of a sequence of 13 new projects that are planned to come on stream in 2010-11 and underpin our growth targets to 2012.

"Looking to new longer-term opportunities, we have been busy in 2010, generating some interesting new positions. Shell's explorers have made 3 new exploration discoveries in the US Gulf of Mexico, and we have entered into new tight and shale gas acreage in China. In Australia, we have agreed to purchase Arrow Energy Limited, with our partner PetroChina, where we see potential for a 7 to 8 million tons per year LNG project, sourced from coal bed methane.

"There are mixed signals for the near-term outlook. So far in 2010, oil prices have remained firm, and demand for petrochemicals has increased, but refining margins, oil products demand and spot gas prices all remain under pressure. Although there are signs of an improving economic outlook, we are not relying on it, we are continuing with our focus on cash flow growth, underpinned by new project startups and lower costs."

Voser concluded, "I am pleased with the results in the first quarter 2010, which were largely driven by our own actions. The priorities are for a more competitive performance, for growth, and for sharper delivery of strategy. There is more to come from Shell."

FIRST QUARTER 2010 PORTFOLIO DEVELOPMENTS

In Australia, Shell has entered into an agreement (Shell share 50%) with Arrow Energy Limited (Arrow) for the proposed acquisition, together with our partner PetroChina, of all of the shares in Arrow, representing a total consideration of some $3.2 billion. The offer is subject to regulatory and Arrow's shareholder approval.

In China, Shell and PetroChina, announced plans to appraise, develop and produce tight gas under a 30-year production sharing contract in an area of approximately 4,000 square kilometers in the Jinqiu block of central Sichuan Province. In addition, shale gas assessment work commenced in January 2010 in the Fushun block that covers another area of also approximately 4,000 square kilometers.

In Nigeria, subject to approvals, Shell agreed to sell its 30% interest in three production leases (oil mining leases 4, 38 and 41) and related equipment in the Niger Delta to a consortium led by two Nigerian companies.

In the USA, at the end of the first quarter 2010, Shell produced its first oil and natural gas from the Perdido Development (Shell share 35.4%), in the deep water Gulf of Mexico. The project is expected to ramp up to expected annual peak production of more than 100 thousand barrels of oil equivalent per day (boe/d).

During the first quarter 2010, Shell participated in 3 exploration discoveries, and one appraisal, all in the US Gulf of Mexico. Shell also increased its overall acreage position, completing acquisitions of new exploration licenses in Egypt, French Guiana, Pakistan, Tunisia and the USA, and was the apparent high bidder for new licenses in the US Gulf of Mexico.

Upstream

  • Oil and gas production for the first quarter 2010 was 3,594 thousand boe/d, 6% higher than in the first quarter 2009. Production for the first quarter 2010 excluding the impact of divestments, production sharing contracts (PSC) pricing effects and OPEC quota restrictions was 6% higher compared to the same period last year.
  • Underlying production in the first quarter 2010 increased by some 200 thousand boe/d from new field start-ups and the continuing ramp-up of fields, more than offsetting the impact of natural field declines.
  • LNG sales volumes of 4.23 million tonnes in the first quarter 2010 were 38% higher than in the same quarter a year ago.

First quarter Upstream earnings were $4,415 million compared to $2,184 million a year ago. Earnings included a net gain of $110 million related to identified items, compared to a net gain of $330 million in the first quarter 2009.

Upstream earnings compared to the first quarter 2009 reflected the effect of higher realized oil prices on revenues, increased oil and natural gas production volumes and significantly improved LNG sales volumes, which were partly offset by the impact of lower realized natural gas prices and higher royalty expenses compared to the first quarter 2009.

First quarter 2010 oil prices increased compared to the first quarter 2009, although the benefit from higher realized oil prices on the first quarter 2010 earnings was partly offset by the effect of lower realized natural gas prices, especially in Europe.

Global liquids realizations were 74% higher than in the first quarter 2009. Global gas realizations were 15% lower than in the same quarter a year ago. In the Americas, gas realizations increased by 22% whereas outside the Americas, gas realizations decreased by 21%, with European gas realizations down 29% compared to the same quarter last year, mainly due to contractual lagging oil-price indexation effects.

First quarter 2010 production was 3,594 thousand boe/d compared to 3,385 thousand boe/d a year ago. Crude oil production was up 1% and natural gas production increased by 12% compared to the first quarter 2009.

First quarter 2010 underlying production increased by some 200 thousand boe/d, driven by new field start-ups and ramp-ups of fields, which more than offset the impact of natural field declines, compared to the first quarter 2009. Production was boosted by the successful ramp-ups of the Sakhalin II project in Russia and Parque das Conchas (BC-10) in Brazil, which are both producing above planned rates, and contributed some 120 thousand boe/d.

LNG sales volumes of 4.23 million tons were 38% higher than in the same quarter a year ago, reflecting the successful ramp-up in sales volumes from Sakhalin II LNG and improved volumes from Nigeria LNG.

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