Underlying fourth quarter earnings at Anglo-Dutch integrated oil behemoth Royal Dutch Shell came in below expectations, but there was some good news for the company's legion of shareholders as the company announced plans to nudge up the quarterly dividend.
Net income on a current cost of supplies (CCS) basis, excluding various exceptional items such as gains from divestments and fair value accounting adjustments, rose to $4.8bn from $3.1bn the year before, but were below the $5.2bn the market was expecting. Adjusted basic CCS earnings per share (EPS) climbed to 78 cents from 67 cents in the fourth quarter of 2011 but fell back from the third quarter's $1.12.
Full year CCS earnings on the same basis (i.e. excluding exceptional items) surged to $24.7bn from $18.1bn in 2010. Adjusted basic full year CCS EPS grew to $7.94 from $5.90.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Downstream woes continue
The downstream (refining) business lost money in the fourth quarter, posting a CCS loss of $278m, versus CCS earnings of $4892m the year before. The upstream business remained in rude health, boosted by soaring oil prices, and clocked up CCS earnings of $5.11bn, up from $3.44bn the year before.
"Our fourth quarter results were impacted by a sharp downturn in industry refining margins and North American natural gas prices," said the group Chief Executive Officer, Peter Voser, who added that the global economy and energy markets are likely to see continued high volatility.
Oil products sales volumes decreased by 8% compared with the same period a year ago as a result of portfolio divestments and weakening global demand. Excluding the impact of divestments and the effects of the formation of the Ra joint venture, sales volumes were 4% lower than in the same period last year.
Refinery intake volumes decreased by 11% compared with 2010, mainly as a result of portfolio divestments and refinery closures. Excluding portfolio impacts, refinery intake volumes were 2% lower compared with 2010. Refinery availability of 92% was in line with 2010.
Upstream top ranking
Improved upstream earnings reflected higher liquids and natural gas realisations. Earnings also reflected higher liquefied natural gas (LNG) realisations, increased LNG sales volumes and higher dividends from an LNG venture. These items were partly offset by lower liquids and natural gas production volumes, higher depreciation and increased exploration expense.
Fourth quarter 2011 production was 3.305m barrels of oil equivalent per day (boepd) compared with 3.496m boepd a year ago. Excluding the impact of divestments of some 90,000 boepd, fourth quarter 2011 production was 3% lower than in the same period last year.
Strong cash flow underpins modest divi increase
Cash flow from operating activities was $6.5bn for the fourth quarter 2011 and $36.8bn for the full year. Excluding net working capital movements, cash flow from operating activities was $7.2bn for the fourth quarter 2011 and $43.2bn for the full year.
As previously announced, the fourth quarter dividend will be $0.42 per share and $0.84 per American Depositary Share (ADS). Shell's quarterly dividend has been fixed at that level since 2009 but the company indicated that it will ratchet up the pay-out to 43 cents per share (86 cents per ADS) in the first quarter of the current financial year. Broker Charles Stanley had suggested the company might be a bit more generous and push the quarterly pay-out up to 44 cents.
Plenty in reserve
With 2011 production of some 1.2bn barrels of oil equivalent (boe), Shell's headline proved reserves replacement ratio for the year is expected to be around 100%. The organic reserves replacement ratio, which excludes the impact of oil price movements in the year, acquisitions and divestments, is expected to be around 120%.
At the end of 2011, total proved reserves are expected to be around 14.2bn to 14.3bn boe, in line with the end of 2010, after taking into account 2011 production. As a consequence, Shell's reserves to production ratio is expected to remain around 12 years at the end of 2011, in line with the end of 2010.
The group set out what it termed a new growth agenda, which included proposed net capital investment of $30bn in 2012, more than four-fifths of which is earmarked for upstream operations.
Divestments are expected to be in the $2bn to $3bn range in 2012, adding to the $17bn of asset sales completed between 2009 and 2011, inclusive.
The "B" shares - the successor to the old UK listed Shell Transport & Trading shares - fell 30.5p to 2,295.5p in reaction to the results.
jh
8 of the best houses for sale with tennis courts
Review: Eden Roc Cap Cana – fun, sun and golf in the Caribbean
