Royal Dutch Shell Plc ( RDS.A)

Q3 2011 Earnings Call

October 27, 2011 9:30 am ET


Simon Henry - CFO


Kim Fustier - Credit Suisse

Jon Rigby - UBS

Irene Himona - Societe Generale

Jason Gammel - Macquaire

Lucas Herrmann - Deutsche Bank

Iain Reid - Jefferies & Co

Mark Gilman - Benchmark Company

Oswald Clint - Sanford Bernstein

Alejandro Demichelis - Merrill Lynch

Jeff Dietert - Simmons & Company

Jason Kenney - Santander

Lucy Haskins - Barclays Capital



Welcome to the Royal Dutch Shell Q3 Results Announcement Call. There will be a presentation followed by a Q&A session. (Operator Instructions). I would like to introduce our host, Mr. Simon Henry. Please go ahead, sir.

Simon Henry

Thank you very much, operator. Welcome to the Royal Dutch Shell third quarter 2011 results presentation. I'll take you through the results and portfolio development for the quarter, and leave plenty of time for your questions. First, the usual cautionary statement.

We continue to make good progress with our strategy; improving our competitive performance and delivering growth for shareholders. Third quarter underlying earnings were $7 billion, earnings per share increased by 40% from third quarter 2010. With $1.8 billion of divestment in the quarter, we've already passed our $5 billion asset sales target for this year, with more to come. Our share buy-back program restarted in August, with $0.8 billion done in the third quarter.

Underlying oil & gas production increased by 2%, and that’s driven by continued progress in Qatar and Canada. We are maturing new projects for medium term growth with exploration success in French Guiana and Australia and launching new upstream development projects. So, we are making good progress against our targets, to deliver a more competitive performance from Shell.

Let me give you more details starting with the macro environment. If you look at the macro picture compared to the third quarter of 2010, oil and gas market prices have increased from year-ago levels although Henry Hub prices broadly similar.

The discount of WTI to Brent widened to $24 per barrel in the third quarter and that compares with less than $1 a year ago.

Our natural gas realizations increased from the second quarter in 2011, whereas the oil realizations declined sequentially. Industry refining margins diverged in the quarter with improved margins in the US West Coast, but declines in all the other regions. In Chemicals, industry margins increased from year-ago levels, especially in the US, although we did see a decline in the margins in Asia. We saw signs of a slow-down in demand at the end of the quarter in several of our downstream businesses.

Turning now to earnings: the CCS earnings, current cost of supplies, for the quarter including identified items were $7.2 billion. Excluding those identified items, the CCS earnings were $7.0 billion, and the earnings per share increased by 40%.

On a Q3 to Q3 basis we saw higher earnings in both Upstream and Downstream. Cash flow from operations was $11.6 billion and dividends in the quarter were $2.6 billion, of which $700 million was settled with new shares, under the scrip dividend program. We are offering that scrip dividend again for the third quarter.

We restarted our share buy-back program in August. This was at a time when financial markets were weak and it's a good time to buying back stock. This buy-back is part of our program to offset the dilution from scrip dividends, which have totaled $3.2 billion since we launched the scrip in 2010.

Now let me talk about the business performance in more detail. Firstly on Upstream: excluding identified items, Upstream earnings were $5.4 billion in the third quarter, and that’s an increase of 58% versus the same quarter in 2010. The earnings were driven by higher oil & gas prices, and a positive environment for LNG, liquefied natural gas trading. Our Upstream earnings were similar to the previous quarter, the second quarter of 2011, despite the $3.60 decline in Brent prices.

Natural gas and LNG were an important part of that good performance, where gas is priced primarily on lagging oil markers. Shell LNG business did very well in the quarter with growth in a good marketing environment. Our integrated gas earnings which is essentially the LNG business have more than doubled from year-ago levels.

The Headline oil and gas production for the third quarter was 3.0 million barrel oil equivalent per day, and that’s an increase of 2% excluding asset sales impacts. The LNG sales volumes grew by 12% Q3 to Q3, and that mainly reflecting the successful ramp-up in Qatargas 4.

Turning now to the Downstream: excluding their identified items, the Downstream earnings increased by 25% from year ago levels. They reached $1.8 billion in the quarter.

Our Oil Products results were similar to year-ago, with higher numbers from Chemicals. The Chemicals results were strong, lifted by higher margins in the US and in Europe, but although weaker margins in Asia. In Oil Products, the results were firm in a difficult industry environment. The earnings were similar to year-ago levels, despite asset sales in the interim and some unfavorable exchange rate movements in this quarter.

Chemicals availability, plant availability, decreased compared with the same quarter last year due to maintenance. Refinery availability though increased from year-ago better levels, and also compared to the second quarter 2011 when we had actually quite a major turn-around programs.

At the end of the third quarter, there was a fire at our Bukom refinery in Singapore. That did impact both refining and chemicals operations there. We are now in the process of restarting that facility, and we are looking into the causes of this incident (inaudible). We would expect to see around $150 million of net impact to earnings for this incident in the fourth quarter results. They will not be treated as an identified item.

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