Shell's profit slips on weak refining, gas prices

Shell CEO Peter Voser is aiming to increase company-wide production 25% by 2018. GETTY IMAGES

Shell's profit for the fourth quarter of 2011 took a knock as widely-anticipated downstream weighed on upstream earnings.

On a current cost of supplies basis, the company today posted Q4 earnings of $6.5 billion, up from $5.7 billion for the same period in 2010.

Adjusted earnings of $4.8 billion undershot analysts’ median expectations of $5.2 billion gathered by Bloomberg.

Full-year 2011 CCS earnings excluding identified items were $24.7 billion compared with $18.1 billion in 2010. The company expects to replace all its oil reserves during the year.

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The downstream business posted a quarterly loss of $278 million, against a $1.8 billion profit in Q3 and $482 million profit for Q4 2010. Margins have been squeezed across the sector as a result of high crude prices and weak demand.

"Our fourth quarter results were impacted by a sharp downturn in industry refining margins and North American natural gas prices," said Shell chief executive Peter Voser. "The global economy and energy markets are likely to see continued high volatility. Despite the near-term uncertainties, Shell's focus remains on through-cycle investment for sustainable growth."

The fall in company-wide profit came despite a rise in total revenue from $100.7 billion in the fourth quarter of 2010 to nearly $115.6 billion last year.

The results were trailed by a commitment from the company to spend $30 billion on capital projects in 2012, 80% of which on upstream. 60% of upstream spending will be in America and Australia. To 2014 the firm hopes to invest $100 billion, which it estimates will see cashflow increase by 50% and production by 25% by 2018.

"Oil & gas production should average some 4 million boe/d (barrels of oil equivalent per day) in 2017-18, an increase of some 25 percent from 2011 levels of 3.2 million boepd," said the company in a statement.

Shell CEO Peter Voser commented: “We have worked hard to generate a strong pipeline of investment opportunities for Shell, and we put the emphasis firmly on a competitive financial performance.

Shell’s investment programmes create cashflow growth, which in turn funds our dividends. All of this is supported by efficiency gains from our continuous improvement programmes, where the opportunity set runs to billions of dollars for Shell.”

Upstream, high oil and LNG earnings over the year were partly offset by a fall in production resulting from divestments. Upstream earnings for 2011 excluding identified items were $20,600 million compared with $14,442 million in 2010, while company-wide production fell to 3.2 million boed from 3.3 million boed in 2010.

LNG sales volumes of 18.83 million tonnes were 12% higher than in 2010, reflecting the successful ramp-up of Qatargas 4 LNG during the year as well as higher volumes from Nigeria LNG and the Sakhalin II project.

The company’s debt profile has improved, with gearing – the ratio of debt to capital – down 4% to 13.1% over the year.

Shell’s banner regional news in Q4 was the signature of a gas capture joint venture in Iraq which will gather and process some 2 billion cubic feet per day (“bcf/d”) of raw gas from the supergiant Rumaila, Zubair and West Qurna 1 fields. The company also signed a Heads of Agreement with Qatar Petroleum for the development of a world-scale petrochemicals complex in which the supermajor will hold a 20% stake.