Replies to post #144 on The Rising Influence of Rising Affluence

[DewDiligence]

Shell Reports Weak 2Q09 Results

[There’s nothing good to say about these numbers other than the cost cutting, which is likely to accelerate now that the new CEO is on board.]

http://online.wsj.com/article/SB124893465550892845.html

›JULY 30, 2009, 5:28 A.M. ET
By JAMES HERRON

LONDON -- Royal Dutch Shell PLC on Thursday posted a 67% fall in net profit for the second quarter, as falling production exacerbated the effect of lower oil and gas prices.

"Energy demand is weak," said Chief Executive Peter Voser said. "There is excess capacity in the market and industry costs remain high." He added that the company is "not banking on a quick recovery" in the global economy.

"Shell is adapting to this new situation, and we must do more," Mr. Voser said. "We are sharpening our focus on delivery and affordability."

The Anglo-Dutch energy company's restructuring program has already eliminated 20% of senior management positions and substantial further cuts are likely, the company said. Cash costs in the first half were cut by $700 million, which would be closer to $2 billion if foreign exchange effects are taken into account, a company spokesman said.

Net profit in the three months ended June 30 fell to $3.82 billion from $11.56 billion a year earlier [but see below for the “constant inventory” numbers, which are consistent with US GAAP]. Revenue declined 51% to $63.88 billion from $131.42 billion.

Total oil and gas production fell 5.3% to 2.96 million barrels of oil equivalent per day due to lower natural-gas demand in many industrialized economies and continuing violent disruption to operations in Nigeria. Analysts were expecting a production decline of 4.2%.

"Production volumes were even lower than we had forecast," NCB analyst Peter Hutton said. "Crude production was down a whopping 8% and gas down 2% year-on year. This is lowest for well over 12 years."

The energy company's clean current cost of supplies, a closely watched after-tax figure that strips out gains or losses from inventories and other exceptional items, fell 63% to $3.15 billion from $8.58 billion [this is essentially the year-over-year earnings change under US GAAP]. Analysts consider the adjusted figure a better performance measure because it excludes the often-volatile value of oil inventories.‹

[DewDiligence]

Shell’s CEO Has His Work Cut Out for Him

[That’s my title, not FT’s, but I think it accurately states the premise of the article. The most notable info here is the finding/developing cost cited by Shell’s CEO about ¾ of the way down; if anyone here disagrees with these cost figures, please chime in!]

http://www.ft.com/cms/s/0/f9c809a8-0951-11df-ba88-00144feabdc0.html

›By Ed Crooks
January 25 2010 02:00

Peter Voser had to be talked into becoming Royal Dutch Shell's chief executive.

Early in 2008, when he was the company's chief financial officer, he says he "made it clear internally here and to the board that I think I'm OK where I am, and I therefore would not go for the CEO job".

When the board asked him to talk about it, however, he agreed, and as he set out his ideas, "I got excited about having the space and the freedom to move as fast as I wanted".

He has used that freedom. After taking over last July, Mr Voser put in place a new organisational structure and cut 5,000 jobs including 150 senior managers, all before the year was out.

When asked to compare himself with Jeroen van der Veer, his predecessor, he says: "I think I'm more direct, and I'm a faster decision-taker."

The restructuring was designed to cut costs, raise efficiency and help secure access to oil and gas reserves. With the overhaul in place, the second task is to look after Mr van der Veer's legacy. Shell is reaching the culmination of an investment cycle, developing projects such as the $18bn (£11bn) Pearl plant converting gas to liquid fuels in Qatar [#msg-43918975], and the $14bn expansion of the Athabasca Oil Sands Project in Canada, which is 60 per cent-owned by Shell.

Over the next couple of years, those projects will be coming into production, at last starting to reverse Shell's seven-year decline in oil and gas output.

That prospect will start Mr Voser's tenure with a following wind, although as he says: "My task is to finish what he started, which is a big piece. You need to deliver the damn thing because just saying you're going to build it is one thing but it needs to work at the end, so that's what we are working on now."

The third task, though, is probably the most difficult. Although Shell is in a much more robust position now than when Mr van der Veer took over in 2004, the fundamental challenge is the same: how to create growth for the coming decade. "That's the visionary part: the objective for the longer term. Where will the oil and gas companies go? Where is the energy industry going? So that's now my task, to set that."

Mr Voser's background is in accountancy and oil products rather than the upstream exploration and production operations.

Yet it is in conventional production that Mr Voser is pinning his hopes for Shell's growth after 2012.

The distinction between conventional and unconventional resources is not clear-cut. Conventional reserves have generally been defined as those where the oil and gas will flow relatively easily from a standard well, while unconventional reserves require special treatment. But Mr Voser says North American gas production from reserves that were previously uneconomic, where Shell has a strong position, should no longer be considered unconventional because it is now common.

However, it is clear that it is conventional oil and gas - including that North American "tight gas" - that Mr Voser sees as the source of future growth.

In the company's list of key new opportunities, there is not another gas-to-liquids plant like Pearl, or a tar sands development like the Athabasca project.

Mr Voser insists that the gas-to-liquids and tar sands investments launched by Mr van der Veer will be worthwhile, but he is clear that the cheapest way to acquire oil and gas reserves is going out and finding them.

"Finding costs are $2 to $3 [per barrel], and then you have development costs of maybe $7 to $10. It depends, if it's deep water it's obviously higher, but on average it's still much cheaper than buying on Wall Street [through] M&A."

When Mr van der Veer took over, that strategy would have been seen as highly risky. Mr Voser believes that after years of investment, which has taken the number of exploration wells drilled from 39 in 2004 to 176 in 2008, the company can now rely much more heavily on reserves it has found for itself. He argues there are now enough opportunities for "the next wave of development" to mean that Shell can prosper even without further expansion in Canada, or in Nigeria: one of the company's heartlands that he now says is no longer essential for growth.

Mr Voser says he reflected on his relative lack of upstream experience when deciding whether to go for the top job but decided it should not stop him.

"Actually, is it important to be the geologist, the technology person, to lead a company like Shell? Or, at the end of the day, is it more important to be a senior leader as a CEO who, together with the right team, will deliver the right results?" he asks.

The decisions he makes now will lay the groundwork for answering that question. The final conclusions will not be clear until well into the decade.‹