Royal Dutch Shell plc released its third quarter results and third quarter interim dividend announcement for 2011.
Royal Dutch Shell Chief Executive Officer Peter Voser commented:
“We continue to make good progress with our strategy; improving our competitive performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders.
Our profits pay for Shell’s substantial investments in new energy projects, to ensure low-cost, reliable energy supplies for our customers and to create value for our shareholders. Our third quarter results were higher than year-ago levels, driven by higher oil prices and Shell’s performance.
In Upstream, our oil and gas production excluding divestments grew by 2% from year-ago levels, driven by the continued ramp-up of our growth projects, mainly in Qatar and Canada. Shell’s LNG sales volumes increased by 12%, with continued robust demand for gas. Our Downstream results were supported by increased Chemicals earnings, with a resilient performance from Oil Products, despite the more difficult economic environment. We have resumed our share buyback programme, with $0.8 billion of buybacks during the quarter, at a time when financial markets have been weak.
Disposal of non-core assets is an important part of our drive to improve Shell’s competitive position and capital efficiency. We completed $6.2 billion of asset sales this year, with $1.8 billion in the third quarter 2011, including a refinery in the United Kingdom and non-core upstream assets in the Americas. We have delivered on our target for $5 billion of disposals this year, ahead of schedule. Asset sales from non-core positions will continue.
We are delivering on our growth strategy, with the build-up of production from new projects. The Athabasca Oil Sands Project Expansion 1 in Canada and the Pearl Gas-to-Liquids (GTL) Train 1 in Qatar have ramped up and production should stabilise at plateau rates shortly. We expect to start up Train 2 of Pearl GTL before the end of 2011, as planned. These projects in Qatar and Canada are part of a series of over 20 new upstream start-ups planned for 2011-14, as we deliver on our plans for sustainable growth, driving Shell’s financial and operating targets for 2012.
We continue to mature new investment options for medium-term growth, taking final investment decision on the Clair Phase 2 development in the United Kingdom, and the Wheatstone LNG project in Australia, confirming a new oil discovery in French Guiana, and also building new acreage positions for exploration drilling in the future.
Voser concluded: “We are making good progress against our targets, to deliver a more competitive performance.”
THIRD QUARTER 2011 PORTFOLIO DEVELOPMENTS
In Australia, Arrow Energy Holdings Pty Ltd (“Arrow”), a joint venture (Shell share 50%) between Shell and PetroChina, announced the front-end engineering and design (FEED) for the Arrow Liquefied Natural Gas (LNG) project on Curtis Island.
Arrow also confirmed that it has entered into a Scheme Implementation Agreement (“SIA”) with coal bed methane company Bow Energy Ltd (“Bow”) under which Arrow has agreed to acquire all of the shares in Bow. The offer values Bow at some $0.5 billion. The acquisition of Bow contributes to Arrow’s opportunity to expand each of the two trains of its proposed LNG project on Curtis Island from 4.0 million tonnes per annum (mtpa) currently planned. The transaction is expected to be implemented in January 2012, subject to Bow shareholder approvals.
Also in Australia, final investment decision was taken on the Wheatstone LNG foundation project (Shell share 6.4%). The foundation project includes two LNG trains with a combined capacity of 8.9 mtpa.
In Canada, Shell announced investment in a LNG-for-transport project Green Corridor (Shell share 100%). The Green Corridor project includes a 0.3 mtpa capacity LNG production facility and downstream infrastructure.
In Mexico, Shell completed the sale of the LNG import and regasification terminal in Altamira for a total consideration of $0.2 billion.
In Norway, Shell agreed to sell its interests in the natural gas transport infrastructure joint venture Gassled for some $0.7 billion. The transaction is subject to regulatory approval and to consent of joint venture partners.
During the third quarter of 2011, Shell participated in two exploration discoveries including the frontier deepwater oil discovery Zaedyus (Shell share 45%) offshore French Guiana, which has the potential to open up an entirely new oil play for the industry, and a gas discovery at Acme West (Shell share 33%) offshore Australia. Also during the quarter, as part of our global exploration programme, Shell built new acreage positions onshore in the Americas and the Ukraine as well as offshore New Zealand and Tanzania.
On October 13, in the United Kingdom, Shell announced the final investment decision for the offshore project Claire Phase 2 (Shell share 28%), with an expected peak production of 120 thousand barrels of oil equivalent per day (boe/d).
In the United Kingdom, Shell completed the sale of the Stanlow refinery for a total consideration of some $1.2 billion (including some $0.9 billion for working capital).
KEY FEATURES OF THE THIRD QUARTER 2011
Third quarter 2011 CCS earnings (see Note 1) were $7,246 million, 106% higher than in the same quarter a year ago.
Third quarter 2011 CCS earnings, excluding identified items (see page 5), were $7,001 million compared with $4,933 million in the third quarter 2010.
Basic CCS earnings per share increased by 104% versus the same quarter a year ago.
Basic CCS earnings per share excluding identified items increased by 40% versus the same quarter a year ago.
Cash flow from operating activities for the third quarter 2011 was $11.6 billion, compared with $9.0 billion in the same quarter last year. Excluding net working capital movements, cash flow from operating activities in the third quarter 2011 was $10.6 billion, compared with $8.1 billion in the same quarter last year.
Total cash dividends paid to shareholders during the third quarter 2011 were $1.9 billion. During the third quarter 2011, some 22.3 million Class A shares, equivalent to $0.7 billion, were issued under the Scrip Dividend Programme for the second quarter 2011. Some 25.3 million Class B shares, equivalent to $0.8 billion, were bought back for cancellation during the quarter under our share buyback programme commenced to offset dilution created by shares issued under the Scrip Dividend Programme.
Net capital investment (see Note 1) for the third quarter 2011 was $6.1 billion. Capital investment for the third quarter 2011 was $7.9 billion.
Return on average capital employed (ROACE) (see Note 6) at the end of the third quarter 2011, on a reported income basis, was 16.4%.
Gearing was 10.8% at the end of the third quarter 2011 versus 19.0% at the end of the third quarter 2010.
Liquids and natural gas production for the third quarter 2011 was 3,012 thousand boe/d, 2% lower than in the third quarter 2010. Production for the third quarter 2011 excluding the impact of divestments of some 100 thousand boe/d was 2% higher than in the same quarter last year.
New field start-ups and the continuing ramp-up of fields contributed some 270 thousand boe/d to production in the third quarter 2011, which more than offset the impact of field declines.
LNG sales volumes of 4.76 million tonnes in the third quarter 2011 were 12% higher than in the same quarter a year ago.
Oil Products sales volumes for the third quarter 2011 were in line with the third quarter 2010. Excluding the impact of divestments and the effects of the formation of the Raízen joint venture, of some 110 thousand b/d, sales volumes were 2% higher than in the same period last year. Chemical product sales volumes in the third quarter 2011 decreased by 9% compared with the third quarter 2010.
Oil Products refinery availability in the third quarter 2011 was 94%, compared with 93% in the third quarter 2010. Chemicals manufacturing plant availability was 90%, compared with 94% in the same period last year.
Supplementary financial and operational disclosure for the third quarter 2011 is available at www.shell.com/investor.
SUMMARY OF IDENTIFIED ITEMS
CCS earnings in the third quarter 2011 reflected the following items, which in aggregate amounted to a net gain of $245 million (compared with a net charge of $1,412 million in the third quarter 2010), as summarised in the table below:
Upstream earnings included a net gain of $636 million, reflecting gains related to the estimated fair value accounting of commodity derivatives (see Note 5), divestment gains and net tax credits. These items were partly offset by asset impairments and decommissioning provisions. Earnings for the third quarter 2010 included a net charge of $284 million.
Downstream earnings included a net charge of $338 million, reflecting an asset impairment as well as redundancy and decommissioning provisions. These items were partly offset by a gain related to the estimated fair value accounting of commodity derivatives and divestment gains. Earnings for the third quarter 2010 included a net charge of $1,128 million.
Corporate and Non-controlling interest earnings included a net charge of $53 million, reflecting a tax charge.