Royal Dutch Shell’s second quarter 2008 earnings, on a current cost of supplies (CCS) basis, were $7.9 billion compared to $7.6 billion a year ago. Basic CCS earnings per share increased by 7% versus the same quarter a year ago.
A second quarter 2008 dividend has been announced of $0.40 per share, an increase of 11% over the US dollar dividend for the same period in 2007.
Cash flow from operating activities for the second quarter 2008, excluding net working capital movements, was $15.9 billion. Net capital investment for the quarter was $5.7 billion. Total distribution to shareholders, in the form of dividends and share repurchases, was $3.8 billion and gearing was 14.5% at the end of the second quarter.
On July 17, 2008, Royal Dutch Shell, through its wholly owned subsidiary Shell Canada Limited, launched an offer to acquire all of the outstanding shares of Duvernay Oil Corp. at a total price of C$5.9 billion, including debt. The offer is subject to certain conditions and regulatory approvals.
Royal Dutch Shell Chief Executive Jeroen van der Veer commented: "This is another set of competitive earnings for Shell shareholders. Good operating performance, combined with increased oil and gas prices, offset the impact of weaker downstream conditions in the second quarter 2008. Shell is making substantial, targeted investments to grow the company for shareholders and help ensure that energy markets remain well supplied. Spending is increasing on new acreage and selective acquisitions as we refresh the portfolio with new options for future growth. Our strategy is on track."
KEY FEATURES OF THE SECOND QUARTER 2008
Second quarter 2008 CCS earnings were $7,902 million or 5% higher than in the same quarter a year ago.
Second quarter 2008 reported income was $11,556 million or 33% higher than in the same quarter a year ago.
As a result of strong increases in oil and related product prices during the second quarter 2008, Oil Products earnings were reduced by some $450 million of non-cash charges related to fair value accounting of commodity derivatives. In addition, strong increases in natural gas and power prices resulted in Gas & Power earnings being reduced by non-cash charges of some $300 million related to fair value accounting of commodity derivatives associated with long-term contracts.
Basic CCS earnings per share increased by 7% versus the same quarter a year ago.
Total cash returned to shareholders in the form of dividends and share repurchases in the second quarter 2008 was $3.8 billion.
Cash flow from operating activities, excluding net working capital movements, was $15.9 billion compared to $10.6 billion for the same quarter last year. Including net working capital movements, cash flow from operating activities was $4.2 billion compared to $8.8 billion in the second quarter 2007.
Capital investment for the second quarter 2008 was $8.0 billion, with net capital investment (capital investment, less divestment proceeds) of $5.7 billion. As the portfolio focus continues, asset sales proceeds in 2008 are expected to increase from around $4 billion to some $5 billion. Acquisitions in 2008 are estimated at around $10 billion, including new growth positions such as new exploration and Australia coal bed methane assets and the offer to acquire Duvernay Oil Corp. Net capital investment for the full year 2008 is expected to be in the range of $35-36 billion, including these acquisitions.
Return on average capital employed (ROACE), on a reported income basis, was 25.8%.
Gearing was 14.5% at the end of the second quarter 2008 versus 12.0% at the end of the second quarter 2007.
Oil and gas production, including oil sands bitumen production, for the second quarter 2008 was 3,126 thousand barrels of oil equivalent per day (boe/d), compared to 3,178 thousand boe/d in the same quarter last year. Excluding the impact of divestments and production sharing contracts (PSC) pricing effects, second quarter 2008 production was in line with the same quarter last year.
Liquefied Natural Gas (LNG) sales volumes of 3.08 million tonnes were 5% lower than in the same quarter a year ago.
Oil Products refinery availability was 92%, at the same level as in the second quarter 2007. Chemicals manufacturing plant availability increased to 95% from 93% in the second quarter 2007. Oil Sands upgrader availability was 96%, unchanged compared to the same quarter last year.
Oil Products sales volumes in the second quarter 2008 increased by 2% compared to the same quarter last year. Chemical product sales volumes decreased by 5% compared to the second quarter 2007.
EXPLORATION & PRODUCTION
Second quarter Exploration & Production segment earnings were $5,881 million compared to $3,099 million a year ago. Earnings included a net gain of $98 million related to identified items, compared to a net gain of $153 million in the second quarter 2007 (see page 3 for details).
Earnings compared to the second quarter 2007 reflected higher gas production volumes and the benefit of higher oil and gas prices on revenues, which were partly offset by lower oil production volumes, higher royalty expenses and higher operating costs.
Global liquids realisations were 74% higher than in the second quarter 2007, compared with marker crudes Brent and WTI increases of 76% and 91% respectively. Global gas realisations were 54% higher than a year ago. Outside the USA gas realisations increased by 57% whereas in the USA gas realisations increased by 53%.
Second quarter 2008 production (excluding oil sands bitumen production) was 3,054 thousand barrels of oil equivalent per day (boe/d) compared to 3,087 thousand boe/d a year ago. Crude oil production was down 6% and natural gas production was up 6% compared to the second quarter 2007.
Production compared to the second quarter 2007 included additional volumes principally from Ormen Lange (Shell share 17%) in Norway, West Salym (Shell share 50%) in Russia, Stybarrow (Shell share 17.1%) in Australia, Changbei (Shell share 50%) in China, Deimos (Shell share 71.5%) in the USA, Starling (Shell share 28%), Caravel (Shell share 71%) and Shamrock (Shell share 100%) in the United Kingdom and Champion West Phase 3B/C (Shell share 50%) in Brunei.
Second quarter portfolio developments
In Australia, Shell signed a preliminary agreement with Arrow Energy Ltd. to acquire a 30% stake in Arrow's coal bed methane acreage in Queensland, and a 10% stake in Arrow International, for a cost of up to $0.7bn . Shell and Arrow plan to jointly develop projects to extract clean-burning natural gas from coal deposits. Completion of a definitive agreement is expected by the end of 2008.
In Peru, Shell signed a preliminary agreement with BPZ Energy Inc. to jointly explore for oil and gas in the northern part of the country.
During the first half of 2008, Shell had four notable exploration discoveries in offshore Nigeria, Australia and Brunei and onshore USA. Shell also significantly increased its overall acreage position through acquisitions of new exploration licences offshore northwest Australia, in the Chukchi Sea and the Gulf of Mexico in the USA.
GAS & POWER
Second quarter Gas & Power segment earnings were $625 million compared to $779 million a year ago. Earnings for the second quarter 2007 included a gain of $247 million related to an identified item (see page 3 for details). In addition, second quarter 2008 marketing and trading earnings were reduced by non-cash charges of around $300 million as a result of fair value accounting of commodity derivatives associated with long-term contracts (see Note 8).
Gas & Power earnings compared to the second quarter 2007 reflected strong LNG prices, which were partly offset by lower LNG sales volumes and lower marketing and trading contributions.
LNG related earnings for the second quarter 2008 were approximately 50% higher than in the same quarter a year ago, mainly reflecting strong LNG prices.
LNG sales volumes of 3.08 million tonnes were 5% lower than in the same quarter a year ago, mainly as a consequence of lower feedgas supplies, planned maintenance shutdowns and changed lifting schedules of cargoes compared to the same quarter last year.
Marketing and trading earnings, non-LNG related, were lower than in the same quarter a year ago, reflecting lower earnings in North America, which was partly offset by higher European contributions.
Second quarter portfolio developments
In the Middle East, an agreement was reached with Qatargas 4 and the Dubai Government for the supply of LNG during the summer months for 15 years. The LNG will be delivered from Qatargas 4 and Shell’s portfolio of other LNG volumes.
In Germany, the sale of the BEB Erdgas und Erdoel GmbH gas transport business (Shell share 50%) to NV Nederlandse Gasunie was closed on July 1, 2008, with all required approvals in place. Proceeds have been mainly received in July 2008, with a remaining payment expected by the end of the year.
OIL SANDS
Second quarter Oil Sands segment earnings were $351 million compared to $202 million in the same quarter last year.
Earnings compared to the second quarter 2007 reflected the impact of higher oil prices on revenues, which were partly offset by lower production volumes and higher operating costs.
Bitumen production decreased by 21% compared to the same quarter last year mainly as a consequence of the execution of the mine tailings management plan which has temporarily led to lower ore grade being mined and due to planned and unplanned maintenance. Upgrader availability was 96%, unchanged compared to the same quarter last year.
OIL PRODUCTS
Second quarter Oil Products segment earnings were $4,539 million compared to $3,928 million for the same period last year.
Second quarter Oil Products CCS segment earnings were $1,075 million compared to $2,936 million in the second quarter 2007. Earnings included a gain of $181 million related to identified items, compared to a gain of $205 million in the second quarter 2007. In addition second quarter 2008 marketing and trading earnings were reduced by a non-cash charge of around $450 million as a result of fair value accounting of commodity derivatives.
CCS earnings compared to the second quarter 2007 reflected substantially lower realised refining margins, higher operating costs, mainly as a result of exchange rate movements, and lower trading contributions.
Industry refining margins compared to the same quarter a year ago were lower in Europe, declined significantly in the US Gulf Coast and US West Coast and were higher in the Asia-Pacific region. Refinery availability remained at 92%, the same level as in the second quarter of 2007.
Marketing earnings compared to the same period a year ago declined due to higher operating costs and lower lubricants margins. In addition, retail margins, net of exchange rate movements, declined, which were partly offset by higher B2B margins.
Oil Products (marketing and trading) sales volumes increased by 2% compared to the same quarter last year. Marketing sales volumes were 1% lower than in the second quarter 2007 and excluding the impact of divestments were 2% higher mainly because of increased aviation, marine and commercial fuels sales.
Second quarter portfolio developments
In Qatar, a Letter of Intent was signed with Qatar Petroleum International and PetroChina to build an integrated refinery and petrochemical manufacturing complex in China.
CHEMICALS
Second quarter Chemicals segment earnings were $157 million compared to $626 million for the same period last year.
Second quarter Chemicals CCS segment earnings were a loss of $142 million compared to a profit of $494 million in the same quarter last year. Earnings for the second quarter 2008 included a net charge of $206 million related to identified items.
CCS earnings compared to the second quarter 2007 reflected lower realised margins, higher operating costs and lower income from equity-accounted investments. In addition, identified items reflecting provisions and asset impairments, which were partly offset by a divestment gain, impacted earnings.
Chemicals manufacturing plant availability increased to 95%, some 2% higher than in the second quarter 2007.
Second quarter Corporate segment earnings were $201 million compared to $177 million for the same period last year. Earnings for the second quarter 2007 included a gain of $55 million related to an identified item.
Earnings compared to the second quarter 2007 reflected higher tax credits and lower shareholder costs, which were partly offset by lower net underwriting income and lower net interest income.
