Shell Looks Past Weak Earnings, Targets New Growth

Published February 2, 2012 12:09PM (EST)

AMSTERDAM (AP) — Royal Dutch Shell PLC's top executives dismissed weaker than anticipated fourth quarter earnings as a blip on Thursday and said Europe's biggest oil company would embark on a new program to boost production, notably in North America.

Chief Executive Peter Voser said the fourth quarter earnings, which fell 4.3 percent to $6.50 billion from a year earlier, were hit by a sharp downturn in industry refining margins and North American natural gas prices.

But Voser said he was "pleased" with the company's overall performance, and released new financial targets, including increasing production by 25 percent, from 3.2 million barrels per day on average in 2011, to 4 million barrels by 2018.

Shell also said Thursday it will increase its quarterly dividend a cent to $0.43 in 2012, its first increase in three years.

Even so, shares in the company dropped as the headline earnings disappointed and analysts moved to reduce their forecasts for upcoming years — by late morning London time, Shell's share price was down around 2.4 percent at 22.70 pounds.

Analysts were also somewhat skeptical about the company's plans, though most would agree that Shell's position has improved since Voser took the top job in 2009.

Then, Shell had targeted a production increase to 3.5 million barrels per day by 2011. Although it missed that goal, its operations have benefited from the company's emphasis on investing in new production, and from selling off refining operations. Shell said Thursday it generated $43.2 billion in cash flow in 2011, up from $33.3 billion in 2010, as several new projects have come on line.

Voser told analysts that with 60 new projects in the works around the world he expects a further increase in cash-flow of "up to 50 percent," or around $200 billion for the four years 2012-2015, assuming oil prices as measured by the Brent benchmark remain in a range of $80 to $100 per barrel.

Shell plans $30 billion in capital expenditures in 2012, 80 percent of it on production projects, and 60 percent in North America and Australia, with a focus on liquefied natural gas, or LNG, projects.

"We have been looking for ways to leverage Shell's strong resource position in North America," Voser said, citing the company's holdings of "tight" gas, or natural gas trapped in shale fields in Texas and Pennsylvania.

Voser said given current low gas prices, the company would likely focus on U.S. fields that contain both oil and gas, but it's also looking at projects to transport and even export gas in the form of LNG to Asia.

"Let me stress that it's early days," he said.

Investec analyst Stuart Joyner said the fourth quarter results were below estimates and noted that Shell's investment costs had been coming in higher than forecast.

"We expect to see material downgrades to the consensus estimate numbers for 2012 and 2013," he said.

Looking more closely at the fourth quarter, Shell's production profits rose 29 percent to $6.57 billion despite a drop in production from 3.49 million barrels per day to 3.31 million barrels. Part of the fall was due to asset sales.

Shell's "downstream" operations, which include its refining arm and chemicals sales, lost $244 million, compared to a profit of $411 million a year ago. The company also paid nearly a billion dollars more in taxes.

The company said that on a "current cost of supplies" basis in both years, fourth quarter earnings would have risen 13 percent. The CCS measure attempts to strip out changes in the value of oil between when it is produced and when it is sold, including tax effects.

Chief Financial Officer Simon Henry said the fourth quarter earnings were "only a snapshot" of Shell's improving long-term performance.

By Salon Staff

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