Shell Continues to Underperform Big-Oil Peers in 4Q09
[Like other members of Big Oil, Shell’s refining business has been a disaster; unlike other members of Big Oil, Shell is not doing well on the upstream side either because it relies more heavily than its peers on NG, which comprised 47% of 4Q09 production (and 62% of proven reserves: #msg-45326827).
Production for the full year 2009 was down for the seventh consecutive year (ouch); during 4Q09, production was 3.33M boe/d, -2.5% vs 4Q08 (+13.8% vs the seasonally slow 3Q09). CEO Peter Voser promises to increase production by 2-3% per year beginning in 2011, but this is hardly impressive insofar as Shell is spending more than $30B in 2010 on cap-ex, the most in the industry. (XOM’s 4Q09 production of 4.18M boe/d was 26% larger than Shell’s, but XOM is spending 10% less than Shell on 2010 cap-ex.) Among the few bright spots for Shell is LNG, where 4Q09 production increased 18% Y0Y to 3.96M metric tones.]
LONDON (MarketWatch) -- Royal Dutch Shell on Thursday returned to profitability in the fourth quarter as oil prices rose, but the group's refining operations limited its earnings which lagged analyst estimates.
Royal Dutch Shell (NYSE:RDS-A) said it earned $1.96 billion in the fourth quarter after losing $2.81 billion in the same period of 2008, when oil prices have plummeted. Excluding the impact of price changes on unsold inventories, as well as $1.6 billion of one-time items, Shell's profit fell to $2.77 billion from $3.89 billion. Analysts on average were expecting earnings of $3.01 billion from The Hague-based oil giant.
Refiners Still Feeling the Pain
Oil refiners are still feeling the pain from weak margins, which are dragging down earnings. While margins have rebounded a bit during the winter, 2010 is nothing to get excited about, analysts say.
"Our fourth quarter 2009 results were impacted by the weak global economy," said CEO Peter Voser.
"Oil prices have increased compared to a year ago, but gas prices and refining margins have declined sharply, because of weaker demand and high industry inventory levels. We are not assuming that there will be a quick recovery, and the outlook for 2010 is uncertain."
Voser said the group will cut another 1,000 employees after 5,000 left through cost-cutting actions last year. The job cuts will mostly come from the downstream side that contains the refining and chemicals divisions. Shell is hoping to save at least $1 billion this year from the move.
Shell's A-class of shares -- there are six different classes that trade in London, Amsterdam and New York -- fell 2.1% on the London Stock Exchange. Shell has underperformed rival BP over the last 12 months in part on its increased exposure to natural gas and refining.
"The key initial read from these results looks to be that unlike its peers, [Shell] did not exceed forecasts in its upstream division, while in the downstream division, like its peers, it was worse than consensus," said James Neale, an analyst at Credit Suisse.
Price divergence
Shell was able to sell liquids -- mostly oil -- for 23% more, but gas prices dropped 31%.
Production fell 2% to 3.41 million barrels of oil equivalent, though that was stronger than the 3.32 million barrels that analysts had anticipated.
Shell said it benefited from 200,000 barrels of oil a day in new field start-ups and ramp-ups, though divestments, production sharing contracts and OPEC quota restrictions dragged overall production lower.
Sales volumes of liquefied natural gas rose 18%, Shell added, as growth from the Sakhalin II project in Siberia, the North West Shelf project in Australia and Oman was only partly offset by drops from Nigeria.
But the company's downstream arm struggled, losing $427 million even when one-times like asset impairments were excluded, as refining margins at Shell, and throughout the industry, tumbled.
On Tuesday, BP also reported dismal refining margins, and a relatively small European player, Neste Oil (HELSINKI:FI:NES1V) , on Thursday reported a quarterly loss and said margins will increase only gradually.
Shell said 560,000 barrels a day of refining capacity -- or 15% of its total -- are under review for possible sale.
It also processed 4% less in its refineries, though the group's chemicals division saw a growing profit on 8% more volume and lower costs.
Shell plans to pay a 42-cents-a-share dividend, up 5%, and it expects its first-quarter dividend also to be 42 cents a share, which disappointed some analysts who thought Shell may increase the payout.‹
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