Royal Dutch Shell Plc (RDS.B)
Q1 2010 Earnings Call
April 28, 2010 8:30 AM ET
Simon Henry – Chief Financial Officer
Michele della Vigna – Goldman Sachs
Alejandro Demichelis – Merrill Lynch
Neil McMahon – Sanford Bernstein
Lucy Haskins – Barclays Capital
Irene Himona – Exane BNP Paribas
Joseph Tovey – Tovey & Company
Bert van Hoogenhuyze – VPV Bankiers
Jason Kenney – ING
Mark Gilman – The Benchmark Company
Theepan Jothilingam – Morgan Stanley
Jon Rigby – UBS
Sergio Marchionne – Union Credit
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Thank you, operator. Good afternoon and good morning to those in the U.S. Welcome to the Royal Dutch Shell First Quarter 2010 Results Presentation. Let me take you through the results in the portfolio developments for the first quarter and we will leave plenty of time for your questions. Firstly, could you take a moment just to read the definitions of the cautionary note.
Our CCS earnings, Current Cost of Supply earnings, actually the identified items for the quarter were $4.8 billion. That’s an earning per share increase of some 61% from the first quarter of 2009. Our results have stepped up from last year and profitability has certainly increased from the low levels that we saw in the fourth quarter of 2009.
This year-over-year improvement has been driven by higher oil prices and higher chemicals margins, but that is combined with increased sales volumes and thus as a result of our operating programs, our operating performance and our growth programs.
These are better results from Shell but we are not relying on economic recovery or seasonal effects from here on in. The macro environment will be what it will be. We continue with our focus on growing our cash flow, underpinned by new projects and lower costs.
Back in March, we outlined our strategy for the next several years. We are working on improving our near-term performance, delivering a new wave of growth into 2012 and maturing the next generation of projects for growth for 2013 and beyond, and we have made progress on all three of these themes so far this year.
We have successful start-ups at two new projects in the quarter - deep water oil and gas production in the Perdido platform in the Gulf Mexico, and new ethylene capacity came on stream in Singapore.
We are delivering on the downstream asset sales in what is still a difficult environment with an agreement to sell our New Zealand position and we are making good progress against our target to reduce costs by $1 billion by 2010. We are abetting a culture of continuous improvement, commerciality and cost control in our day-to-day activities.
Looking to the longer term, we are building on our 2009 exploration success with new discoveries. And we have taken up new gas positions in China and Australia, and new Brazil biofuels joint venture which includes, of course, more downstream potential. Overall, it is a good start to 2010.
Let me give you some details on performance in the quarter and I’ll start with the macro environment.
If you look at the macro picture compared with the first quarter of last year, the oil prices were significantly higher than the $44 a year ago. Brent averaged $76 a barrel and actual gas prices increased in most regions but were slightly lower in Europe.
The industry refining margins were significantly lower than year ago levels and that's in most regions, although refining margins did improve from the fourth quarter of ‘09 and they were supported in this by a high level of industry, downtime to maintenance in the first quarter.
The chemicals margins increased in all regions compared to the first quarter of 2009, with the most pronounced improvements coming from Asia and Europe. So it’s a pretty complicated picture overall but some trackers up and some down. But overall, the trends were positive for us in the quarter.
Turning now to our earnings. The earnings for the quarter did include identified one-off items of $75 million. Excluding those items, the current cost of supply earnings were $4.8 billion and the earnings per share increased by 61% and that's compared with the first quarter a year ago.
The quarter was characterized by higher earnings in upstream and a decline in the downstream. That’s mainly a result of higher oil prices and chemical margins, the higher volumes in the upstream and the lower refining margins in the downstream.
The cash flow from operations for the quarter was $4.8 billion, but excluding the net movements in working capital was just over $10 billion.
Now, let me talk about the individual business performance in a bit more detail.
Firstly on the upstream. The upstream earnings increased by 132% to $4.3 billion in the first quarter of 2010. The higher oil prices, the higher oil and gas production and the higher LNG sales volumes were the main drivers in the upstream results and these are partly offset by the lower realized gas prices in Europe.
Some of you have asked to see our gas realizations including our large affiliate company in the Netherlands, the NAM. So, we have now included the NAM realizations in the European information in our supplementary tables for you to use. And hopefully this helps you with your modeling and on that basis you will note that the European price went down year-on-year.
The upstream production increased by 6% first quarter to first quarter and we reached some 3.6 million barrels of oil equivalent per day. If you set aside what we call uncontrollable factors, things like the OPEC quota, the weather and look at the underlying performance, then the barrels from the new fields and ramp-ups contributed some 200,000 barrels of oil equivalent per day and that more than offset the 150,000 barrels a day impact from the natural field decline.