Shell Earnings Double With Higher LNG and Oil Prices

Royal Dutch Shell $RDSA reported strong fourth quarter results Thursday, doubling profits from a year ago. Shell, the first big oil earnings to report beat analysts forecasts boosted by prior cost cutting, strong refining operations, chemicals and a rise in LNG and oil prices.

Royal Dutch Shell $RDSA reported strong fourth quarter results Thursday,  doubling profits from a year ago. Shell, the first big oil earnings to report  beat analysts forecasts boosted by prior cost cutting, strong refining operations, chemicals  and a rise in LNG and oil prices.

Earnings 

Royal Dutch Shell net income jumped to US$3.81 billion from US$1.54 billion in the same quarter a year earlier, in line with analyst forecasts. Earnings excluding one-time items and fluctuations in the value of inventories,  the industry’s favored measure of performance rose 140 percent to US$4.3 billion.he oil & gas giant,  $RDSA current cost of supply (CCS) earnings excluding identified items attributable to shareholders of USD15.76 billion for all of 2017 compared to USD7.19 billion the previous year, more than doubling, and narrowly beating analyst consensus of USD15.72 billion.

Reaction: Royal Dutch Shell plc (ADR) NYSE: $RDS.A 

Feb 1, 10:04 AM EST 69.29USD -1.03 (-1.46%)

Highlights

  • The average price Shell received for its oil rose 24 percent from a year earlier to US$55.28 a barrel 
  • Results include a USD2.00 billion non-cash charge related to US tax reform, part of which slashed Federal corporate tax to 21% from 35%. Shell had said in late December it expected a positive long-term impact from the changes,
  • CCS earnings attributable to shareholders was USD12.08 billion for 2017, more than trebling on 2016’s USD3.53 billion.
  • For the fourth quarter of 2017, CCS earnings excluding items attributable to shareholders was USD4.30 billion, compared to USD1.80 billion last year. Full-year earnings were boosted, Shell said, by higher prices in oil, gas, and liquefied natural gas, improved refining performance and higher production on new fields, offsetting field declines and divestments.
  • Total production in oil & gas for all of 2017 was flat, however, at 3.7 million barrels of oil equivalent per day, highlighting the impact rising prices had on the business. Brent was quoted at USD69.51 on Thursday, having been quoted at as low as USD27.08 in January 2016, being the start of the comparative year to 2017.
  • The Brent price is currently at around its highest level since November 2014.

Shell Integrated Gas and Upstream units beat analyst consensus for CCS earnings excluding identified items. Downstream missed it.

Upstream

  • Upstream cash flow fell to USD3.77 billion in the final quarter, down from USD4.22 billion a year before, with positive capital movements offset by higher tax, with a charge of USD1.09 billion being booked for US tax changes.
  • For the year, cash flow more than doubled to USD16.34 billion from USD7.66 billion. Upstream production fell 7.0% in the fourth quarter year-on-year to 2.78 million barrels of oil equivalent a day from 2.66 million due to divestments, and rose 1.0% excluding these.
  • Upstream posted USD3.09 billion in CCS earnings excluding items for 2017 compared to 2016’s USD2.70 billion loss and above consensus of USD2.55 billion. 
  • Fourth quarter CCS earnings excluding items were USD1.65 billion, significantly above the USD54.0 million posted in the same period last year. Identified items for the fourth quarter in Upstream include USD1.13 billion related to the sale of Shell’s UK North Sea assets, and during the period Shell sold off some USD3.25 billion of assets in total when the sale of Gabon assets are included.

Downstream,

  • Integrated Gas CCS earnings excluding items were USD5.27 billion in all of 2017 compared to USD3.70 billion the previous year, beating consensus of USD5.16 billion.
  • In the fourth quarter alone, CCS earnings excluding items were USD1.64 billion compared to USD907 million in 2016.
  • Total production for the fourth quarter increased year-on-year in Integrated Gas due to higher production from the Gorgon field in Western Australia.
  • LNG liquefaction volumes were lower due to maintenance work, and cash flow fell sharply to USD823.0 million from USD2.42 billion in the fourth quarter which Shell said was mainly due to working capital movements and higher tax.
  • The division booked a USD412.0 million charge due to US reform.
  • During the period Shell sold off its entire holding in Woodside Petroleum Ltd for USD2.64 billion, as part of its USD30 billion divestment programme as it reshapes the business.
  • Shell’s Downstream unit posted CCS earnings of USD9.09 billion for 2017, up from USD7.24 billion in 2016 but short of the USD9.81 billion consensus.
  • Cash flow more than tripled to USD12.43 billion from USD3.56 billion. Fourth quarter CCS earnings excluding identified items in Downstream rose to USD1.40 billion from USD1.34 billion  in the previous year, though they did almost halve quarter-on-quarter from USD2.67 billion in the third quarter due to higher operating expenses and foreign exchange.

Outlook

  • Looking forward to the first quarter of 2018, Shell said Integrated Gas volumes are expected to increase by around 210,000 barrels of oil equivalent a day as Gorgon delivers and the Pearl processing plant in Qatar ramps up.
  • Upstream earnings are expected to be hit by a reduction in production due to divestments, though lower maintenance will partially offset this. In the Netherlands, production outlook is subject to Dutch government action following an earthquake in Zeerijp in January.
  • Refinery availability is expected to decrease in the first quarter due to maintenance, though chemicals manufacturing will benefit from the reverse.
  • Shell said that, due to a change in the currency used by some Australian entities to the US dollar, the impact of exchange rate movements of the Australian dollar will be significantly reduced for the year.

Chief Executive Ben van Beurden said:

“2017 was a year of strong financial performance for Shell. A year of transformation, in which we showed we have what it takes to deliver a world-class investment case. Our relentless focus on value, performance and competitiveness meant we were able to deliver USD39 billion of cash flow from operations excluding working capital movements from our upgraded portfolio.

“We strengthened our financial framework during the year through an USD8 billion reduction in our net debt, while our increased free cash flow generation gave us the confidence to cancel the scrip dividend programme in the fourth quarter, in line with what we said previously. We enter 2018 with continued discipline and confidence, committed to the delivery of strong returns and cash.”

Whale Deep Well Discovery

Shell also announced Wednesday the discovery of one its largest oil discoveries in the Gulf of Mexico in the past decade. The discovery, on the Whale deep-water well, found more than 1,400 net feet of oil bearing pay, the company said. Evaluation is ongoing and appraisal drilling has begun to further evaluate the discovery. Shell, London’s largest listed company, owns 60% of the well, with Chevron USA Inc owning the rest. It is in the Alaminos Canyon block 772, adjacent to Shell’s Silvertip field and around 10 miles from the company’s Perdido platform.

Dividend

Shell maintained its annual dividend at USD1.88 per share, flat on last year, as expected, having scrapped its scrip dividend during the fourth quarter. Income attributable to shareholders soared to USD12.98 billion for all of 2017 from USD4.58 billion in 2016, while cash flow from operations was USD35.65 billion compared to USD20.62 the year before.

Divesture Program

Shell continues on it’s divesture program to reduce debt with it’d debt to equity ratio falling from from a peak of 29.2 percent in the third quarter of 2016 that followed its $54 billion acquisition of BG Group. Shell said there are on track to meet its target of $30 billion in divestments between 2016 and 2018. The company recently completed the sale of a package of assets in the North Sea and Gabon.

During the fourth quarter, Shell completed the sale of the LPG marketing business in Hong Kong and Macau to DCC PLC for USD150.3 million as well as cancelling the sale of AS Dansk Shell, made up of the Fredericia refinery and associated activities.

Results for Shell’s first quarter are scheduled for release on April 26, second quarter on July 26, and third quarter results on November 1. 

Source: Royal Dutch Shell

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