31st Jan 2019 09:08
LONDON (Alliance News) - Amid a strong set of financial results for both the fourth quarter and 2018 as a whole, Royal Dutch Shell PLC on Thursday said its divestment programme means production is likely to fall in the near-term.
Shell, London's largest listed company by market capitalisation, was among the best performing stocks in the FTSE 100 Thursday morning. Shell 'A' shares were up 3.5% at 2,355.50 pence each, and 'B' shares were 3.7% higher at 2,360.00p.
For 2018, the energy giant's production was 3.7 million barrels of oil equivalent per day, broadly flat year-on-year. Fourth quarter production rose 1%, however, to 3.8 million barrels of oil equivalent a day, and was marginally higher on the fourth quarter.
In Integrated Gas, 2018 output was 957,000 barrels a day, up 8% year-on-year. For the fourth quarter, production was broadly flat year-on-year at 979,000 barrels a day.
Integrated Gas current cost of supply (CCS) earnings excluding identified items attributable to shareholders came in at USD9.40 billion versus USD5.27 billion last year. Consensus had forecast USD9.37 billion.
Fourth quarter Integrated Gas CCS earnings were up 44% year-on-year to USD2.36 billion.
Shell's Upstream division produced 2.7 million barrels of oil equivalent per day in 2018, down 2% year-on-year. Fourth quarter output rose 1% year-on-year to 2.8 million barrels of oil equivalent a day.
Upstream CCS earnings came in at USD6.78 billion, versus USD3.09 billion last year and consensus of USD6.69 billion. Fourth quarter CCS earnings increased 14% to USD1.88 billion year-on-year.
Downstream processed 6.8 million barrels of oil products a day in 2018, up 3% year-on-year, but chemicals sales fell 3% to 17.6 million tonnes. In the fourth quarter, the figures rose 1% year-on-year and fell 12% respectively.
This weakness in the Downstream segment was reflected in the division's earnings, which fell 17% in 2018 to USD7.57 billion, though this was above consensus of a slip to USD7.07 billion.
Downstream fourth quarter CCS earnings rose 53% to USD2.13 billion.
Looking into the first quarter of 2019, Shell expects Integrated Gas output to fall by between 140,000 barrels and 170,000 barrels of oil equivalent per day, "mainly due to divestments".
Likewise, Shell has guided for Upstream to fall by between 10,000 barrels and 50,000 barrels of oil equivalent per day, again due to divestments as well as field decline, though some new production will help offset this.
In Downstream, refinery capacity is guided to decrease due to increased maintenance, while sales in Argentina are likely to affect oil product sales by between 40,000 barrels and 70,000 barrels of oil equivalent per day.
In 2018, Shell made a total of USD7.10 billion of divestments, compared to USD17.34 billion in 2017. It has now completed a programme of USD30 billion of divestments to help streamline the company.
Recent sales include an exit from New Zealand gas assets in December for USD578 million, October's USD1.9 billion sale of upstream assets in Norway, while in June it sold two more Norwegian assets for USD556 million.
At the same time, it also sold a stake in a Malaysian site for USD750 million, and in May it sold its stake in Canadian Natural Resources for USD3.3 million.
Earlier, in April, it sold its Argentine Downstream operations for USD950 million, and in March it sold its interests in the Iraqi West Qurna 1 field for USD406 million.
"The bar is always set high for Shell and, on the whole, the company delivers. In these numbers, the ongoing benefits of a multi-year streamlining operation are crystal clear," said Richard Hunter, head of markets at Interactive Investor.
"Of course, the generally higher oil price over the year gave a boost to the numbers. Equally, the more recent weakness makes for a tougher environment, but Shell has been there before. Part of the streamlining has been a disposal of non-core assets, which has resulted in divestments of USD30 billion in this year alone," he continued.
"The company has admitted this this will inevitably lead to lower production in the near future, but the slack can be picked up in any number of places within the behemoth's sprawling operation."
Also announced Thursday by Shell was the start of the third tranche of its share buyback programme, first announced last July.
The third tranche will be worth USD2.5 billion, and is part of Shell's plan to buy "at least" USD25 billion of shares from shareholders by the end of 2020.
Shell's dividend for 2018 was USD1.88 per share, flat year-on-year, as expected by analyst consensus.
Looking at earnings on a group level, Shell's current cost of supply earnings excluding identified items attributable to shareholders rose 36% to USD21.40 billion from USD15.76 billion in 2017. Analyst consensus had predicted CCS earnings of USD20.98 billion.
For the fourth quarter alone, CCS earnings were USD5.69 billion, up 32% compared to USD4.30 billion for the same three-month period a year ago. Consensus stood at USD5.28 billion.
Revenue for 2018 came in at USD388.38 billion, up 27% from USD305.18 billion last year.
Shell's free cash flow soared to USD39.43 billion for the year from USD27.62 billion, with quarterly free cash flow USD16.71 billion from USD6.61 billion year-on-year.
Cash flow from operating activities climbed 49% to USD53.09 billion in 2018, and for the fourth quarter it tripled year-on-year to USD22.02 billion.
As at the end of 2018, net debt was USD51.43 billion, from USD60.51 billion at September's end and USD65.94 billion at the end of 2017.
Underlying operating expenses increased 4% to USD39.03 billion for the year.
"Within the numbers, negatives are few and far between. The company will have a firm eye on operating expenses, which rose by 4%, whilst the company's divestments will put extra pressure on the remaining units," added Hunter.
"Any further weakness in the oil price will need to be managed carefully and, longer term, capital expenditure will be a continuing drain as the company looks to explore alternative energies as the power landscape changes."
Shell's Chief Executive Ben van Beurden commented: "Shell delivered a very strong financial performance in 2018, with cash flow from operations of USD49.6 billion, excluding working capital movements."
"We delivered on our promises for the year, including the completion of the USD30 billion divestment programme and starting up key growth projects while maintaining discipline on capital investment," he added.
"We paid our entire dividend in cash, further reduced our debt and launched our share buyback programme, with USD4.5 billion in shares repurchased so far."
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