Europe’s largest oil company Royal Dutch Shell plc (RDS.A) reported strong third quarter 2011 results, thanks to higher commodity prices and contribution from new projects.
Earnings per ADR (on a current cost of supplies basis), excluding one-time items and gains or losses from inventories, came in at $2.24, significantly ahead of the year-ago result of $1.61 and also the Zacks Consensus Estimate of $2.14. Revenues were up 36.1% to $123.4 billion.
Segmental Performance
Upstream: Upstream segment earnings during the quarter (excluding items) were $5.4 billion, up 58.1% from $3.4 billion (adjusted) earned in the year-ago period.
This primarily reflects the impact of higher liquids and natural gas prices, better liquefied natural gas (LNG) realizations and volumes, as well as improved trading contributions, partly offset by increased production taxes and higher operating expenses.
Upstream volumes averaged 3.0 million oil-equivalent barrels per day (MMBOE/d), down 1.5% from the year-ago period. Natural gas volumes fell 1.0%, while crude oil output decreased 1.9% from the corresponding period last year. Crude oil production contributed approximately 56% of total volumes, while natural gas volumes accounted for the rest. Excluding the effects of lost production on account of divestments, Shell’s output was 2% higher than the year-earlier level.
Production during the quarter compared with the year-ago quarter included volumes from new field start-ups and the continued ramp-up of existing fields, which boosted output by roughly 270 MBOE/d.
LNG equity sales volumes of 4.76 million tons were 12% higher than the year-ago quarter, mainly due to contribution from the Qatargas 4 project.
Downstream: In the Downstream segment, Shell recorded a profit (excluding items) of $1.8 billion as against earnings of $1.5 billion (adjusted) in the year-ago period. The increase reflects the impact of better Chemicals results. Despite weak downstream market conditions, increased refining realizations and higher contributions from equity-accounted investments also helped the results of the Anglo-Dutch super major.
However, Shell’s results were adversely affected by a decrease in refinery plant intake volumes. Refinery availability was up 1% from the same period of 2010 (from 93% to 94%).
Cash Flow
During the quarter, the group generated cash flow from operations of $11.6 billion, returned $1.9 billion to shareholders through dividends and spent $7.9 billion on capital projects.
Balance Sheet
As of September 30, 2011, the group had $19.3 billion in cash and $39.4 billion in debt (including short-term debt). Net debt-to-capitalization ratio stood at approximately 10.8%.
Outlook & Rating
Royal Dutch Shell – Europe's most valued oil company and ahead of BP plc (BP) and Total SA (TOT) – owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.
The Hague-based group continues to make solid progress with its targets and has been able to boost returns and remain competitive by embarking on aggressive cost reduction initiatives, exiting unprofitable markets and streamlining the organization. In particular, the company said that its substantial investments in new projects are paying off, reflected by an upward trend in volumes (excluding asset sales).
Royal Dutch Shell ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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