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Shell Highlights 3Q GoM Cardamom Start-Up, Utica Discoveries

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   |    Thursday,October 30,2014

Royal Dutch Shell has reported its third quarter 2014 results.

Highlights:

• Royal Dutch Shell's third quarter 2014 earnings, on a current cost of supplies (CCS) basis, were $5.3 billion compared with $4.2 billion for the same quarter a year ago.
• Third quarter 2014 CCS earnings excluding identified items were $5.8 billion compared with $4.5 billion for the third quarter 2013, an increase of 31%.
• Compared with the third quarter 2013, CCS earnings excluding identified items benefited from improved Downstream and Upstream results. In Downstream, earnings benefited from increased contributions from refining including improved operating performance, and trading. In Upstream, earnings increased due to the impact of new, higher-margin production, lower exploration expenses, and higher earnings from Integrated Gas, despite the effect of lower oil prices and volumes overall. The increase of a deferred tax liability as a result of the weakening Australian dollar reduced earnings by some $400 million compared with the third quarter 2013.
• Basic CCS earnings per share excluding identified items increased by 30% versus the third quarter 2013.
• Cash flow from operating activities for the third quarter 2014 was $12.8 billion, compared with $10.4 billion for the same quarter last year. Excluding working capital movements, cash flow from operating activities for the third quarter 2014 was $11.1 billion, compared with $9.9 billion for the third quarter 2013.
• Capital investment for the third quarter 2014 was $8.5 billion. Net capital investment for the third quarter was $4.8 billion, compared with $9.4 billion for the same period a year ago.
• Total cash dividends paid to shareholders in the third quarter 2014 were $3.0 billion. During the third quarter some 18.5 million shares were bought back for cancellation for a consideration of $0.8 billion.
• Gearing at the end of the third quarter 2014 was 11.7%.
• A third quarter 2014 dividend has been announced of $0.47 per ordinary share and $0.94 per American Depositary Share ("ADS"), an increase of 4% compared with the third quarter 2013.

Royal Dutch Shell Chief Executive Officer Ben van Beurden commented: "Shell is proud to deliver high-quality fuels, lubricants and petrochemicals, for transportation, power generation and manufacturing industries. With over 90,000 employees in more than 70 countries around the world, Shell is dedicated to delivering low-cost, safe and reliable energy for our customers.

"The recent decline in oil prices is part of the volatility in our industry. It underlines the importance of our drive to get a tighter grip on performance management, keep a tight hold on costs and spending, and improve the balance between growth and returns.

"Our results today show that we are delivering on the three priorities I set out at the start of 2014 – better financial performance, enhanced capital efficiency and continued strong project delivery. We have moderated our spending on growth and accelerated disposals of our non-strategic portfolio as part of a drive to improve capital efficiency. Proceeds from asset sales so far this year total $11.6 billion, with further disposals ongoing.

"Our plans to exit from Pinedale and Haynesville mark the completion of the major sales programme in our North America resources plays portfolio. We are now focusing on creating value from this slimmed-down position. Restructuring in Oil Products continues, with the completion of the divestment of Shell’s Australia positions in the quarter. Our new investments are delivering benefits to the bottom line. We have brought four new deep-water fields on-stream this year. We are also adding new potential to the portfolio through exploration and appraisal successes.

"Shell’s strategy is founded on creating value for the long term. Our dividend per share for the third quarter of 2014 is up 4% from year-ago levels. With $8.9 billion of dividends declared and $2.4 billion of shares repurchased in the first three quarters of this year, we are on track for a programme of over $30 billion of dividend distributions and buybacks for 2014 and 2015 combined. All of this underlines the company’s recent improved performance and potential for the future."

3Q 2014 Portfolio Developments

Upstream

In Nigeria, Shell announced first production from the Shell-operated Bonga North West deep-water development (Shell interest 55%). Oil from the Bonga North West subsea facilities is transported by a new undersea pipeline to the existing Bonga floating production, storage and offloading (FPSO) export facility. The Bonga FPSO has been upgraded to handle the additional oil flow from Bonga North West which, at peak production, is expected to contribute 40 thousand barrels of oil equivalent per day (boe/d).

In the United States, Shell announced the second major 2014 start-up in the deep-water Gulf of Mexico with the Cardamom development first oil (Shell interest 100%). Oil from the Cardamom subsea development is piped through Shell's Auger platform and is planned to ramp up to 50 thousand boe/d at peak production.

In October, Shell announced first production from the Shell-operated Gumusut-Kakap deep-water development (Shell interest 33%) in Malaysia. The production system is expected to reach a peak oil production of around 135 thousand boe/d. With oil production now underway, work on the gas injection facilities is continuing with an expected start-up during 2015.

In October, Shell announced the final investment decision (FID) on the Bonga Main phase 3 project (Shell interest 55%) offshore Nigeria. The development is expected to contribute some 40 thousand boe/d at peak production through the existing Bonga FPSO export facility.

In October, Shell commenced front end engineering and design (FEED) on the Vito deep-water development project (Shell interest 51%) in the Gulf of Mexico, United States. The development, which is expected to deliver peak production of 100 thousand boe/d after coming on-stream, will be a 120 thousand boe/d capacity floating production system (FPS) with flexibility for up to four subsea tiebacks.

In October, Shell announced a frontier exploration discovery offshore Gabon, West Africa (Shell interest 75%). The Leopard-1 well encountered a substantial gas column with around 200 metres net gas pay in a pre-salt reservoir. Shell and its partners are planning to undertake an appraisal programme to further determine the resource volumes.

During the quarter, in Shell's heartlands exploration programme Shell made a gas discovery at the Shell-operated deep-water Marjoram-1 well (Shell interest 85%) in Malaysia. Shell also announced two oil discoveries in the Gulf of Mexico with the successful Rydberg exploration well (Shell interest 57%) in the Norphlet play, and with the Kaikias well (Shell interest 100%) in the Mars basin.

Shell had continued success with near-field exploration discoveries in a number of countries, including the successful Dhulaima drilling campaign in North Oman.

As part of its global exploration programme, Shell added new acreage positions following successful bidding results in the United States and Colombia.

In resources plays in the United States, Shell announced two gas discoveries in the Utica formation in Tioga County, Pennsylvania with the Neal and Gee exploration wells.

Shell continued to divest non-strategic Upstream positions during the third quarter 2014, withdivestment proceeds totalling some $1.6 billion.

In Canada, Shell completed the divestment of its 100% interest in the Orion Steam Assisted Gravity Drainage (SAGD) project to Osum Oil Sands Corp. for a consideration of $0.3 billion.

Shell also completed the sale of its interest in a portion of its dry gas Deep Basin assets in Canada to Mapan Energy Ltd. for a consideration of some $0.1 billion.

In the United States, Shell completed the divestment of its entire interest in the Pinedale dry gas asset in Wyoming to Ultra Petroleum Corp. As part of the transaction, Shell received cash consideration of $0.8 billion including closing adjustments and gained an additional 155 thousand net acres in the Marcellus and Utica Shale areas in Pennsylvania. Shell now holds a 100% interest in the Tioga Area of Mutual Interest where two new gas discoveries were announced during the quarter.

Also in the United States, Shell completed the sale of its interest in 207 thousand net acres in the Slippery Rock acreage in western Pennsylvania to Rex Energy for a consideration of $0.1 billion.

Shell also agreed to sell its entire interest in the Haynesville dry gas asset in Louisiana, United States to Vine Oil & Gas LP and its partner Blackstone Group L.P. for a consideration of $1.2 billion, subject to closing. The transaction is effective from July 2014.

Shell agreed to sell its non-operated 20% interest in the BM-ES-23 concession in the Espirito Santos basin offshore Brazil to PTT Exploration and Production Public Company Ltd. The transaction, which is effective from January 2014, is expected to close later in the year.

Downstream 

Shell (40%), together with Hyundai Oilbank (60%), announced through its joint venture, Hyundai and Shell Base Oil Company Ltd, first production from the venture's Base Oil Manufacturing Plant (BOMP) in South Korea. The plant has the capacity to produce some 13 thousand barrels per day of API Group II base oils.

On October 28, 2014 Shell Midstream Partners, L.P., a limited partnership formed by Shell in the United States earlier this year, announced the pricing of its initial public offering of 40,000,000 common units representing limited partner interests at $23.00 per common unit. The common units began trading on the New York Stock Exchange on October 29, 2014 under the ticker symbol "SHLX". The underwriters of the offering have a 30-day option to purchase up to an additional 6,000,000 common units from Shell Midstream Partners. The offering is expected to close on or around November 3, 2014, subject to customary closing conditions.

Downstream divestment proceeds totalled some $2 billion for the third quarter 2014 and included proceeds from the sale of Shell's Downstream businesses (excluding Aviation) in Australia to Vitol.

3Q 2014 Key Features

• Third quarter 2014 CCS earnings excluding identified items were $5,847 million compared with $4,457 million for the third quarter 2013, an increase of 31%.
• Compared with the third quarter 2013, CCS earnings excluding identified items benefited from improved Downstream and Upstream results. In Downstream, earnings benefited from increased contributions from refining including improved operating performance, and trading. In Upstream, earnings increased due to the impact of new, higher-margin production, lower exploration expenses, and higher earnings from Integrated Gas, despite the effect of lower oil prices and volumes overall. The increase of a deferred tax liability as a result of the weakening Australian dollar reduced earnings by some $400 million compared with the third quarter 2013.
• Basic CCS earnings per share increased by 22% versus the same quarter a year ago.
• Basic CCS earnings per share excluding identified items increased by 30% versus the same quarter a year ago.
• Cash flow from operating activities for the third quarter 2014 was $12.8 billion, compared with $10.4 billion for the same quarter last year. Excluding working capital movements, cash flow from operating activities for the third quarter 2014 was $11.1 billion, compared with $9.9 billion for the third quarter 2013.
• Net capital investment (see Note [2]) for the third quarter 2014 was $4.8 billion. Capital investment for the third quarter 2014 was $8.5 billion and divestment proceeds were $3.6 billion.
• Total cash dividends paid to shareholders in the third quarter 2014 were $3.0 billion.
• Under our share buyback programme some 18.5 million shares were bought back for cancellation during the third quarter 2014 for a consideration of $0.8 billion.
• Return on average capital employed on a reported income basis (see Note [7]) was 7.7% at the end of the third quarter 2014 compared with 10.4% at the end of the third quarter 2013.
• Gearing was 11.7% at the end of the third quarter 2014 versus 11.2% at the end of the third quarter 2013.
• Oil and gas production for the third quarter 2014 was 2,790 thousand boe/d, a decrease of 5% compared with the third quarter 2013. Excluding the impact of divestments, Abu Dhabi license expiry, PSC price effects, and security impacts in Nigeria, third quarter 2014 production volumes were 2% higher than for the same period last year.
• Equity sales of LNG of 5.68 million tonnes for the third quarter 2014 were 16% higher than for the same quarter a year ago.
• Oil products sales volumes for the third quarter 2014 were 2% lower than for the third quarter 2013. Chemicals sales volumes for the third quarter 2014 decreased by 4% compared with the same quarter a year ago.