Royal Dutch Shell Management Discusses Q3 2010 Results - Earnings Call Transcript

Royal Dutch Shell Management Discusses Q3 2010 Results - Earnings Call Transcript
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Royal Dutch Shell Plc (

RDS.A

)

Q3 2010 Earnings Call

October 28, 2010 2:00 pm ET

Executives

Simon Henry - CFO

Analysts

Guy Chazan - Wall Street Journal

Fred Pals - Bloomberg

James Herron - Dow Jones

Robin Pagnamenta - The Times

Tom Bergin - Reuters

Eduard Gismatullin - Bloomberg

Daniel O'Sullivan - Energy Intelligence

Presentation

Simon Henry

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Welcome to the Royal Dutch Shell first quarter 2010 results presentation. Firstly, please take a moment to read through our cautionary statement. I'll take you through the results and then there'll be plenty of time for your questions.

Our current cost of supplies earnings for the quarter excluding identified items were $4.9 billion, an earnings per share increase of over 85% compared with the third quarter of 2009. And the results rebounded from year-ago levels, driven by both execution of our strategy and more favorable industry conditions. I'll give you the details in a moment, but both Upstream and Downstream earnings have increased substantially here in fact approximately doubled.

This is a better performance from Shell, and the quarter underlines for delivering on our strategy, which is all about shorter-term performance focus, delivering the growth targets for 2012 and creating new options for the future beyond that. Our continuous improvements are going well. We took out $3.5 billion of underlying cost in 2009, and to the middle of this year. And this year-to-date we've completed over $2 billion of asset sales from our non-core portfolio.

We are in a delivery window for new growth. The third quarter production increased by 5%, and we started up new production at the end of the quarter in Canada's oil sands and mining. Building for the future, we took the final investment decision on two new projects in the deep water. And we made $5.5 billion or we actually completed $5.5 billion of acquisitions in the quarter.

So let me give you a few more details on the results, starting with the macro. We do have quite some seasonal business for example, natural gas, where the factor such as wet weather can be an important driver. So we have to look at these macro trends and the earnings that are related to them on a year-against year-basis to normalize for that.

If you look at the macro picture compared to the third quarter last year, oil and gas prices did increase from a year-ago. However, the spread between oil and natural gas realizations remains wide. And this is mainly driven by the more rapid increase in oil prices compared to North American natural gas prices.

That said, we have seen a year-over-year increase in European natural gas realizations, the actual price we achieved. And this has reversed the declining trend in the first half of the year. This of course is positive for our earnings.

Chemicals margins have increased in most regions against the third quarter last year, and we're seeing good earnings in this segment. Refining conditions remain challenging, although margins have actually improved from a year-ago.

Turning now to our earnings, the headline current cost of supply earnings of $3.5 billion for the quarter included identified items of $1.4 billion. We normally every year test our carrying values in the third quarter, carrying values on the balances sheet that is. And the results today they do include impairments as a result on upstream and downstream positions.

Most financial analysts do tend to set these items aside and they'll all confirm because of the underlying results. So the third quarter earnings excluding the identified items were $4.9 billion, earnings per share increased 86%. The cash flow from operations for the quarter was strong at $9 billion, the dividend for the quarter $0.42 per share.

The quarter for higher earnings in both upstream and downstream, so let me talk a bit more about that in detail.

Firstly in the upstream, excluding the identified items the upstream earnings increased by 106%, more than double, to $3.4 billion in the third quarter. The main drivers in these results were higher oil and gas prices, increased dividends from more of LNG joint ventures and our underlying program to increase volumes and control costs.

The production increased by 5% Q3-to-Q3. Production from new fields and field ramp-ups of relatively new production was around 180,000 barrels a day of oil equivalent. And not more than offset the field decline that we say the natural consequences at operations. Our LNG, liquefied natural gas sales volumes grew by 22% over the past year. This was under-pinned by Nigeria LNG, where the gas supply picture to the LNG plant has improved. We essentially reached full capacity at the LNG plant, about six trains, 22.5 million tons at random equivalent by the end of the third quarter.

Now let me also update you on our activities in the offshore in the U.S. and Gulf of Mexico in the light of the drilling moratorium following the BP Macondo oil spill. We have continued some of our development activities during the drilling moratorium, for example, with a restart of the Perdido platform in September, following some maintenance activities there.

However, we had five floating rigs, four of them in the Gulf and four platform rigs idled in the United States during the third quarter because of this moratorium. So in the quarter's financial results, we've taken a $59 million charge for the impact of having these rig idled. This was taken as an identified item, and that brings the total for this year so far to $115 million. There will likely be further charges in the fourth quarter results.

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