Europe’s largest oil company Royal Dutch Shell plc (RDS.A) reported weaker-than-expected fourth-quarter 2014 earnings due to low crude price realization.
Earnings per ADR (on a current cost of supplies basis), excluding one-time items and gains or losses from inventories, came in at $1.04, widely missing the Zacks Consensus Estimate of $1.34.
However, comparing year over year, Shell’s adjusted earnings per ADR improved almost 12% (from 93 cents), owing to substantially higher refining profits across most of its operating regions.
Revenues of $92.4 billion saw a 15% deterioration from the year-ago figure of $109.2 billion.
The Hague-based group is the first of the integrated super majors to come out with fourth-quarter results. U.S. biggie Exxon Mobil Corporation (XOM) and its British rival BP plc (BP) will release results next week.
For the year ended Dec 31, 2014, Shell reported profit (excluding one-time items and inventory changes) of $7.15 per ADR, failing to meet the Zacks Consensus Estimate of $7.45 per ADR but up from $6.19 per ADR in 2013. Revenues of $421.1 billion were almost 7% down from the year-ago period.
Fourth-Quarter Segmental Performance
Upstream: Earnings during the quarter (excluding one-time items) were $1.7 billion, down 30% from $2.5 billion (adjusted) earned in the year-ago period.
Significant lower oil price realization during the quarter primarily hurt the upstream business. This was however partially offset by an improved high-margin liquids output along with higher performance from operations.
Upstream volumes averaged 3.2 million oil-equivalent barrels per day (MMBOE/d), down 1% from the year-ago quarter. Natural gas volumes fell more than 1%, while crude oil output also decreased 1% from the corresponding quarter last year. Crude oil contributed approximately 48% to total volume, while natural gas accounted for the rest. Oil and gas field decline was mainly responsible for lower production.
For the full year, Shell’s production came in at 3.1 MMBOE/d, down 4% from 2013.
Shell’s worldwide realized liquids prices were 25% below the year-earlier level, while natural gas realizations decreased by 12%. Natural gas prices in America fell 3% from the last year’s level.
LNG equity sales volumes of 6.20 million tons were 26% higher than the year-ago quarter, mainly due to contribution from LNG developments in the Atlantic and Peru.
Downstream: In this segment, the Anglo-Dutch super-major recorded a profit (excluding one-time items) of $1.6 billion, reflecting a dramatic improvement from $558 million in the year-ago quarter. The considerable increase accounts for the impact of higher refining profitability, the company’s operating efficiency, and solid marketing and trading. To some extent, these factors were offset by lower Chemical earnings.
Cash Flow
During the quarter under review, the company generated cash flow from operations of $9.6 billion, returned $3.1 billion to shareholders through dividends/share buybacks and spent a net $7.8 billion on capital projects.
Balance Sheet
As of Dec 31, 2014, the company had $21.6 billion in cash and $45.5 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 12.2%.
Outlook
Shell is planning to curb capital expenditure by roughly $15 billion over the coming three years to cope with the free fall in crude oil price.
Other News
As per Nasser al-Esawi, Shell has entered into a deal with Iraq. Per the agreement, Shell is expected to spend roughly $11 billion on building a petrochemical plant in Iraq.
The plant is likely to start operating within the coming five to six years. Following the commencement of the plant’s operations, Iraq is anticipated to become the biggest producer of petrochemicals in the Middle East.
Zacks Rank
Royal Dutch Shell currently carries a Zacks Rank #5 (Strong Sell), implying that the stock will significantly underperform the broader U.S. equity market over the next one to three months.
Meanwhile, a better-ranked player in the energy sector is Cheniere Energy Partners LP (CQP). The stock sports a Zacks Rank #1 (Strong Buy).
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