1st Feb 2007 07:00
Royal Dutch Shell
Delivery and growth - leveraging a strong portfolio
* Royal Dutch Shell's fourth quarter 2006 CCS earnings were $6.0 billion, compared to $5.4 billion a year ago. CCS earnings per share increased by 14% versus the same quarter a year ago. * Full year 2006 CCS earnings were $25.4 billion. Excluding the 2005 gain of $1.7 billion related to the divestment of pipeline assets held through Gasunie NV in the Netherlands, full year 2006 CCS earnings per share increased by 25% versus a year ago. * Fourth quarter 2006 dividend has been announced of euro 0.25 per share, an increase of 9% from year-ago levels. * From 2007 onwards the Group will declare its dividends in US dollars rather than in euros. The first quarter 2007 dividend is expected to be declared at $0.36 per share, an increase of 14% compared to the first quarter dividend of 2006. * $1.4 billion or 0.6% of Royal Dutch Shell shares were bought back for cancellation during the quarter bringing the total for 2006 to $8.2 billion or 3.7% of the shares.
Chief Executive Jeroen van der Veer commented "In 2006, we saw good operational and financial performance in Shell. Our exploration strategy is paying off. Hydrocarbon production was underpinned by the production re-start from the Mars platform in the USA, growth in LNG and deep water Nigeria. However onshore Nigeria we continue to have major security related concerns. Downstream continued to deliver very competitive results. We increased our reserves, and took important investment decisions on projects in gas to liquids, deep water, unconventional oil and downstream. We have agreed to partner with Gazprom in Sakhalin II, and are progressing with the proposal to acquire the minority shareholding in Shell Canada".
Summary unaudited resultsFOURTHQUARTER $ million FULL YEAR 2006 2005 % 2006 2005 %
5,283 4,368 +21 Income attributable to shareholders 25,442 25,311 +1
Estimated current cost of supplies (CCS) adjustment for Oil Products and Chemicals 732 1,073 (see note 2) (77) (2,580) 6,015 5,441 +11 CCS earnings 25,365 22,731 +12 0.84 0.67 Basic earnings per share ($) 3.97 3.79 0.11 0.16 Estimated CCS adjustment per share ($) (0.01) (0.38) 0.95 0.83 Basic CCS earnings per share ($) 3.96 3.41 0.25 0.23 Dividend per ordinary share (euro) 1 1.00 0.92
1. Q1 2005 based on dividend paid by Royal Dutch Petroleum Company, adjusted for the effects of the unification.
Key features of the fourth quarter and full year 2006
* Fourth quarter 2006 reported income was $5,283 million or 21% higher than the same quarter a year ago. * Fourth quarter 2006 CCS earnings were $6,015 million or 11% higher than the same quarter a year ago. * Full year 2006 reported income of $25,442 million and similar to 2005 reported income. * Full year 2006 CCS earnings were $25,365 million and increased by 21% versus 2005 excluding the 2005 divestment gain of $1.7 billion related to the divestment of pipeline assets held through Gasunie NV in the Netherlands. Higher Upstream earnings in Exploration & Production and Gas & Power reflected higher price realisations, increased marketing opportunities and increased liquefied natural gas (LNG) volumes partly offset by higher costs. Downstream Oil Products earnings of $7.0 billion reflected a strong trading performance and higher lubricants earnings offset by lower refining earnings. Also in Downstream, Chemicals earnings reflected lower margins offset by the start up of the Nanhai petrochemicals complex in China and lower charges and provisions than in 2005. * Return on average capital employed on a reported income basis (see note 4) was 23.4% for 2006. * When final volumes are reported in the Annual Report 2006, it is expected that additions to total world-wide proved SEC oil and gas reserves and provable mining reserves (oil sands) will total around 2 billion boe in 2006 (* see note 10). Production totalled some 1.3 billion boe in 2006, including 0.03 billion boe of oil sands production, so that the Reserves Replacement Ratio (see note 10) for 2006 is expected to be around 150% including oil sands. The movement of reserves related to the Sakhalin II project were not material in 2006. Year-end pricing effects amount to a decrease of between 50 to 70 million boe and impact the Reserves Replacement Ratio by 4% to 6% points. The net impact of acquisitions and disposals in 2006 was an increase of 60 to 70 million boe. No impacts are included for the offer to buy out the minority shareholding of Shell Canada or the expected dilution to a 27.5% stake in Sakhalin II. Neither of these transactions have closed and any impacts are anticipated in 2007. For additional information see note 10. * Full year 2006 Exploration & Production segment earnings were $15,195 million compared with $14,238 million in 2005 (which included a gain of $1.7 billion related to the divestment of pipeline assets held through Gasunie NV in the Netherlands). Earnings reflected higher oil prices, partly offset by lower production volumes, higher operating costs reflecting industry conditions and increased pre-development activity levels and lower USA gas prices. * Full year 2006 Gas & Power segment earnings were $2,650 million, compared to $1,573 million a year ago. The increase in earnings reflected 14% growth in LNG sales volumes, higher realised LNG prices and strong LNG and natural gas marketing and trading performance. * Full year 2006 Oil Products CCS earnings were $7,027 million compared to $7,532 million in 2005, and reflected lower refining earnings partly offset by higher trading profits and increased lubricants earnings. Also in Downstream, full year 2006 Chemicals CCS earnings were $1,095 million compared to $782 million in 2005. Chemicals earnings reflected lower margins offset by the start up of the Nanhai petrochemicals complex in China and lower charges and provisions than in 2005. * Gearing (see note 6) was 14.8% at the end of 2006 versus, on a comparable Royal Dutch Shell basis, 13.6% at the end of 2005. * Total cash returned to shareholders in 2006 was $16.3 billion in the form of dividends and share repurchases. * Full year 2006 cash flow from operating activities was $31.7 billion compared to $30.1 billion in 2005. Excluding working capital movements and taxation effects, cash flow from operating activities was $39.5 billion compared to $35.6 billion a year ago (see note 8). * Capital investment for 2006 was $23.1 billion, excluding the minority share of Sakhalin of $1.8 billion. This includes $3.0 billion of acquisitions mainly related to the acquisition by Shell Canada of BlackRock Ventures Inc. in Canada. Some $1.7 billion of proceeds were realised from divestments, predominantly in Downstream, so that net capital investment for the year was $21.4 billion. * In Russia, Shell, Gazprom, Mitsui and Mitsubishi have signed a protocol to bring Gazprom into the Sakhalin Energy Investment Company Ltd. (SEIC) as a leading shareholder. It is expected that the agreements will be completed in 2007. Under the terms of the protocol, Gazprom will acquire a 50% stake plus one share in SEIC for a total cash purchase price of $7.45 billion. The current SEIC partners will each dilute their stakes by 50% to accommodate this transaction, with each receiving a proportionate share of the purchase price. Shell will retain a 27.5% stake, with Mitsui and Mitsubishi holding 12.5% and 10% stakes, respectively. Gazprom and the existing SEIC shareholders will enter into an Area of Mutual Interest arrangement, which will cover both future Sakhalin area oil and gas exploration and production opportunities, and building of Sakhalin II into a regional oil and LNG hub. Furthermore, the Sakhalin II shareholders reached agreement with the Ministry of Industry and Energy as the authorised state body for the supervision of Production Sharing Agreements of the Government of the Russian Federation, regarding the amended budget of Sakhalin II and cost recovery. The Production Sharing Agreement for the Sakhalin II project will continue. The Sakhalin II amended project budget for phase 2 is expected to be approved by the SEIC Supervisory Board. * Royal Dutch Shell plc announced in January 2007 that it has reached agreement with and obtained the recommendation of the Board of Directors of Shell Canada on a revised offer to acquire all of the outstanding common shares of Shell Canada not owned by Royal Dutch Shell at a cash price of C$45.00 per share. This offer would value Shell Canada's fully diluted minority share capital at approximately C$8.7 billion. Royal Dutch Shell currently owns 78% of the common shares of Shell Canada.
Basic earnings per share (see notes 1, 2 and 9)
QUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 0.84 0.93 0.67 Earnings per share ($) 3.97 3.79 0.95 1.09 0.83 CCS earnings per share ($) 3.96 3.41
Diluted earnings per share (see notes 1, 2 and 9)
QUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 0.83 0.93 0.66 Earnings per share ($) 3.95 3.78 0.95 1.09 0.83 CCS earnings per share ($) 3.94 3.40
Summary segment earnings
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % Segment earnings 3,710 3,743 3,561 Exploration & Production 15,195 14,238 582 787 530 Gas & Power 2,650 1,573 1,469 2,160 1,898 Oil Products (CCS basis) 7,027 7,532 273 335 8 Chemicals (CCS basis) 1,095 782 246 260 (277) Other Industry and Corporate 277 (523) (265) (337) (279) Minority interests (879) (871) ______ ______ ______ ______ ______ 6,015 6,948 5,441 +11 CCS earnings 25,365 22,731 +12 ______ ______ ______ ______ ______
Summary segment earnings - continued
Earnings in the fourth quarter 2006 reflected the following items, which in aggregate were a net gain of $515 million (compared to a net gain of $34 million in the fourth quarter 2005) as summarised in the table below:
* Exploration & Production fourth quarter 2006 earnings included a net income of $387 million, reflecting both divestment gains from assets in the UK and Norway and a gain of $276 million related to the mark-to-market valuation of certain UK gas contracts, partly offset by tax effects and pension costs. * Oil Products fourth quarter 2006 earnings included net income of $103 million reflecting tax effects partly offset by pension costs. * Chemicals fourth quarter 2006 earnings included net charges of $83 million from legal costs and pension costs partly offset by tax effects. * Corporate included $108 million of net tax credits.Summary tableQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 Segment earnings impact 387 (163) 152 Exploration & Production 641 1,727 - - - Gas & Power - (84) 103 - - Oil Products (CCS basis) 38 427 (83) - (84) Chemicals (CCS basis) (113) (565) 108 86 2 Other Industry and Corporate (206) (148) - - (36) Minority interests (41) (82) ______ ______ ______ ______ ______ 515 (77) 34 CCS earnings impact 319 1,275 ______ ______ ______ ______ ______
These items generally relate to events with an impact of greater than $50 million on earnings and are shown to provide additional insight in the direction of the segment earnings, CCS earnings and income attributable to shareholders. Further additional comments are provided in the section 'Earnings per industry segment' on page 6 and onwards.
Earnings per industry segment
UpstreamQUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 Realised Oil Prices (period $/bbl average) $/bbl 54.93 65.60 52.74 WOUSA 60.37 50.56 52.94 62.57 53.10 USA 58.53 48.94 54.65 65.13 52.77 Global 60.13 50.36 Realised Gas Prices (period $/thousand scf average) $/thousand scf 7.63 6.43 5.73 Europe 6.94 4.99 4.59 4.05 4.47 WOUSA (including Europe) 4.41 3.84 6.87 7.31 12.40 USA 7.74 8.43 5.06 4.77 5.78 Global 5.08 4.77 Oil and gas marker industry prices (period average) 59.59 69.63 56.90 Brent ($/bbl) 65.10 54.55 59.90 70.44 60.00 WTI ($/bbl) 66.04 56.60 6.68 6.05 12.29 Henry Hub ($/thousand scf) 6.76 8.80 UK National Balancing Point 29.93 33.77 65.31 (pence/therm) 41.93 40.61 Exploration & ProductionQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % 3,710 3,743 3,561 +4 Segment earnings 15,195 14,238 +7 Crude oil production (thousand 2,201 2,054 1,986 +11 b/d) 2,030 2,093 -3 Natural gas production available for sale (million scf 8,377 6,942 8,784 -5 /d) 8,368 8,263 +1 Barrels of oil equivalent 3,645 3,251 3,500 +4 (thousand boe/d) 3,473 3,518 -1
Fourth Quarter Exploration & Production segment earnings were $3,710 million compared to $3,561 million a year ago.
Fourth quarter 2006 earnings included a net income of $387 million including both divestment gains from assets in the UK and Norway, and a gain of $276 million, related to the mark-to-market valuation of certain UK gas contracts partly offset by tax effects and pension costs. The fourth quarter 2005 included a net gain of $152 million mainly from tax credits partially offset by mark-to-market charges in the UK. Excluding these effects earnings were 3% lower than a year ago.
Earnings reflected higher production volumes and oil prices partly offset by higher operating costs reflecting industry conditions and increased pre-development activity levels and lower USA gas prices.
Liquids realisations were 4% higher than a year ago, in line with marker crudes Brent (+5%) and WTI (flat). Outside the USA gas realisations increased by 3% and in the USA gas realisations decreased by 45%.
Fourth quarter 2006 production was 3,645 thousand boe per day compared to 3,500 thousand boe per day a year ago. Production benefited by 103 thousand boe per day due to the resolution of contractual issues impacting the full year 2006 but recorded in the fourth quarter only. This impact in the quarter was largely offset by unusually low seasonal gas demand in North West Europe. Excluding the impact of security concerns in Nigeria in 2006, PSC impacts from oil and gas prices and hurricane damage in the Gulf of Mexico in 2005, production in the fourth quarter 2006 was 5% higher than a year ago or 2% also excluding the impact of the resolution of contractual issues.
Production compared to the fourth quarter 2005 included new volumes of 278 thousand boe per day including Bonga (Shell share 55%) and Erha (Shell share 44%) in Nigeria, West Salym (Shell share 50%) in Russia, Pohokura (Shell share 48%) in New Zealand, Champion West Phase III (Shell share 50%) in Brunei and the early start up of E8 in Malaysia (Shell share 50%).
Production from Shell Petroleum Development Company's Nigerian operations was 191 thousand boe per day (Shell share) lower than a year ago due to deferred production mainly in the Western Delta resulting from security concerns. Whilst efforts continue towards restoring safe operational conditions in the Niger Delta, no firm date can be given for the re-start of the production nor is it possible to predict the rate of ramp up to full production. Restricted access in the area continues to impact the drilling programme for the future, and the progress of new projects.
Full Year Exploration & Production segment earnings were $15,195 million compared to $14,238 million a year ago.
2006 earnings included net gains of $641 million mainly related to the mark-to-market valuation of certain UK gas contracts and divestment gains. 2005 included net gains of $1,727 million almost entirely related to the divestment of pipeline assets in the Netherlands, as various taxation credits and other divestments were almost offset by a net charge for mark-to-market valuation of certain UK gas contracts. Excluding these effects earnings were 16% higher than a year ago.
Earnings reflected higher oil prices, partly offset by 1% lower production volumes, higher operating costs reflecting industry conditions and increased pre-development activity levels and lower USA gas prices.
Liquids realisations were 19% higher than a year ago, in line with increases in marker crudes Brent of 19% and WTI of 17%. Outside the USA gas realisations increased by 15% and in the USA gas realisations decreased by 8%.
2006 production was 3,473 thousand boe per day compared to 3,518 thousand boe per day a year ago. Production benefited by 27 thousand boe per day due to the resolution of contractual issues. 2006 included negative PSC effects on production of 18 thousand boe per day from higher oil and gas prices. Excluding the impact of security concerns in Nigeria, PSC impacts from higher oil and gas prices, and hurricane damage in the Gulf of Mexico in 2005, production was around 3% higher than last year or 2% also excluding the impact of the resolution of contractual issues.
Production compared to 2005 included new volumes of 207 thousand boe per day including Bonga (Shell share 55%) and Erha (Shell share 44%) in Nigeria, West Salym (Shell share 50%) in Russia, Pohokura (Shell share 48%) in New Zealand, Champion West Phase III (Shell share 50%) in Brunei and the early start up of E8 in Malaysia (Shell share 50%). In the USA, production restarted from the Mars platform (Shell share 72%).
Production from Shell Petroleum Development Company's Nigerian operations was 171 thousand boe per day (Shell share) lower than a year ago due to deferred production mainly in the Western Delta resulting from security concerns.
Fourth Quarter Portfolio developments:
In Brazil, Shell announced go ahead of the development of the BC-10 deepwater block (Shell share 50%) following declaration of commerciality earlier. The BC-10 development consists of multiple subsea wells and manifolds, tied back to a Floating Production, Storage and Offloading vessel with a capacity of 100 thousand barrels per day. First production is expected around the turn of the decade. Also in Brazil, Shell declared two accumulations of heavy oil to be commercially viable on Block BS-4.
In Canada, the Alberta Energy and Utilities Board and the Government of Canada approved the Muskeg River Mine expansion, an integral part of Shell Canada's Athabasca Oil Sands Project. This approval completes the major regulatory approvals required for the fully integrated 100 thousand boe per day expansion of oil sands mining and related upgrading facilities. Also in Canada, the integration of the acquired assets and operations of BlackRock into Shell Canada has been completed.
In the UK, Shell completed the sale of its 50% holding in the Auk and 43% holding in the Fulmar fields and associated infrastructure and in Norway, the sale of the Jotun field (Shell share 45%) was completed.
In the Netherlands, Energie Beheer Nederland has agreed to take a 40% financial interest from NAM (Shell share 50%) in the possible redevelopment of the Schoonebeek oilfield.
In the USA, major multi-year investment programmes were approved to furtherdevelop the onshore gas projects at Pinedale in Wyoming and in South Texas(Shell share 100%).Gas & PowerQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % 582 787 530 +10 Segment earnings 2,650 1,573 +68 Equity LNG sales volume 3.34 2.94 2.81 +19 (million tonnes) 12.12 10.65 +14
Fourth Quarter Gas & Power segment earnings were $582 million, compared to $530 million in the same quarter last year. Higher earnings reflected a 19% increase in LNG sales volumes, and higher realised LNG prices partially offset by dividend phasing.
LNG equity sales volumes of 3.3 million tonnes were 19% higher than the same quarter a year ago, driven by growth from Nigeria LNG (Shell share 26%) and Qalhat LNG (Shell share 11%). In addition, the LNG plants continued to achieve excellence in operational performance. Realised LNG prices improved, reflecting the increase in crude prices and continued opportunities for LNG cargo optimisation.
Full Year segment earnings were $2,650 million, compared to $1,573 million a year ago. The increase in earnings of 68% reflected growth in LNG sales volumes, higher realised LNG prices, LNG cargo optimisation and strong marketing and trading performance in Europe and North America. LNG sales volumes increased by 14% compared to 2005.
Marketing and trading earnings reflected gas storage optimisation in the USA and overall strong marketing performance across North America and Europe.
Full year 2006 LNG sales volumes of 12.1 million tonnes were an increase of 14% compared to 2005 due to the capacity growth in Nigeria and Oman. Income from LNG cargo optimisation in 2006 increased reflecting market conditions and success in accessing high value markets.
Fourth Quarter Portfolio developments:
In Qatar, Shell was appointed by Qatar Gas Transport Company Limited to manage its fleet of at least 27 new LNG carriers under a long-term deal. This new fleet of LNG vessels, currently under construction, will be put into service over the next four years servicing four of Qatar's major LNG projects including Qatargas4 (Shell share 30%).
In China, construction was completed at Shell's first equity coal gasification plant (Shell share 50%). The Dongting plant will supply synthesis gas to a Sinopec fertilizer production facility.
In Australia, Woodside (Shell share 34%) progressed with site preparation andordering of long lead items for the Pluto LNG development ahead of a finalinvestment decision. The project is expected to develop a production capacityof 5 to 6 million tonnes of LNG per annum to supply to Japanese and othermarkets.DownstreamQUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 Refining marker industry gross $/bbl margins(period average) $/bbl 15.65 13.25 10.30 ANS US West Coast coking margin 16.05 14.45 10.00 14.70 12.65 WTS US Gulf Coast coking margin 14.55 12.30 2.05 3.45 4.80 Rotterdam Brent complex 3.15 4.60 Singapore 80/20 Arab light/ 1.10 0.95 2.45 Tapis complex 1.80 2.90 Oil ProductsQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % 791 1,214 828 Segment earnings 7,125 9,982 678 946 1,070 CCS adjustment - see note 2 (98) (2,450) ______ ______ ______ ______ ______ 1,469 2,160 1,898 -23 Segment CCS earnings 7,027 7,532 -7
3,890 3,907 3,978 -2 Refinery intake (thousand b/d) 3,862 3,981 -3
Total Oil products sales 6,467 6,521 6,695 See 1 (thousand b/d) 6,485 7,057 See 1
1. Certain contracts are held for trading purposes and reported net rather than gross with effect from Q3 2005. The effect in Q1 2006, Q2 2006, Q3 2006 and Q4 2006 is a reduction in Total Oil products sales of approximately 890 thousand b /d, 840 thousand b/d, 870 thousand b/d and 780 thousand b/d respectively. The effect in Q4 2005 was 820 thousand b/d.
Fourth quarter segment earnings were $791 million compared to $828 million for the same period last year.
Fourth quarter CCS earnings were $1,469 million compared to $1,898 million in the fourth quarter of 2005. Earnings for the fourth quarter 2006 included net gains of $103 million reflecting tax effects partly offset by pension costs.
Lower CCS earnings reflect reduced trading profits, lower refining margins and higher operating costs. Improved refinery utilisation and higher lubricants earnings partly offset these declines.
In Manufacturing, Supply and Distribution, industry refining margins declined in all regions except the US West Coast. Refinery utilisation on an Equivalent Distillation Capacity (EDC) basis increased to 81.2 % compared to 78.9% in the fourth quarter of 2005.
In Marketing, earnings declined compared to the same period a year ago. Retail and B2B earnings were lower mainly due to weaker margins in the USA and higher operating costs. Lubricants earnings improved due to stronger margins and operating costs improvements.
Marketing sales volumes declined 3.2% compared to volumes in the fourth quarter of 2005. Excluding the impact of divested volumes (2.7%) and rationalised uneconomical B2B volumes (1.4%) volumes were some 1% higher.
Full year segment earnings were $7,125 million compared to $9,982 million for 2005.
Full year CCS earnings were $7,027 million compared to $7,532 million in 2005. Earnings in 2006 included net gains of $38 million related to tax effects partly offset by pension costs. Earnings in 2005 include $427 million net divestment gains. Lower refining earnings were partly offset by higher trading profits and increased Lubricants earnings. Higher operating costs negatively impacted earnings in 2006.
In Manufacturing, Supply and Distribution, average industry refining margins declined in Europe and Asia Pacific. Refinery utilisation on an Equivalent Distillation Capacity (EDC) basis was 79.4% after an unusually heavy planned maintenance schedule, compared to 79.6% in 2005 heavily impacted by hurricanes.
In Marketing, earnings increased compared to 2005 mainly due to higher Lubricants earnings offsetting lower retail and B2B earnings. Marketing sales volumes declined 4.0% compared to volumes in 2005 including the impact from divested volumes (2.2%) and rationalised uneconomical B2B volumes (1.1%).
ChemicalsQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % 184 251 (38) Segment earnings 1,064 991 89 84 46 CCS adjustment - see note 2 31 (209) ______ ______ ______ ______ ______ 273 335 8 Segment CCS earnings 1,095 782 +40 5,690 5,636 5,729 -1 Sales volumes (thousand tonnes) 23,137 22,826 +1
Fourth quarter segment earnings were $184 million compared to a loss of $38 million for the same period last year.
Fourth quarter CCS segment earnings were $273 million and included net charges of $83 million from legal and pension costs partly offset by tax effects. This compares to earnings of $8 million in the same quarter last year, which included $84 million of net charges mainly from legal costs.
Higher earnings reflected improved margins, higher profits from equity-accounted investments and lower costs. Higher profits from equity-accounted investments included the Nanhai petrochemicals complex in China (Shell share 50%), which continued to build up operating rates and sales volumes. Overall asset utilisation in the fourth quarter was 77%, reflecting planned and extended maintenance in Europe and in the USA. This compared to 82% a year ago when operations in the USA were disrupted by the hurricanes.
Full year segment earnings were $1,064 million compared to $991 million for the same period last year.
Full year 2006 CCS earnings were $1,095 million compared to $782 million in 2005. Chemicals earnings reflected lower margins partly offset by the start up of the Nanhai petrochemicals complex in China and lower charges and provisions than in 2005. Earnings in 2006 included $113 million of net charges including legal costs and pension costs partly offset by tax effects. Earnings in 2005 included charges of $565 million mainly from the divestment of the polyolefins joint venture, Basell, and legal provisions. Excluding these effects 2006 earnings were 10% lower than a year ago reflecting lower margins partly offset by higher earnings from equity-accounted investments, including the Nanhai petrochemicals complex in China and the impact in 2005 related to hurricanes in the USA.
Asset utilisation of 81% reflected the impact of the heavy planned maintenance programme in the USA and in Europe and was comparable to asset utilisation in 2005, when operations in the USA were disrupted by hurricanes. Sales volumes were largely in line with last year, excluding product trading.
Other Industry and Corporate segments
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 (18) (4) (110) Other Industry segment earnings (37) (202) 264 264 (167) Corporate segment earnings 314 (321) ______ ______ ______ ______ ______ Other Industry and Corporate 246 260 (277) segments results 277 (523)
Fourth quarter Other Industry and Corporate segments results were a gain of $246 million, including net tax credits of $108 million, compared to a loss of $277 million for the same period last year. Increased currency exchange gains were partly offset by lower net interest income.
Full year Other Industry and Corporate segments results were a gain of $277 million compared to a loss of $523 million a year ago. Net interest income, currency exchange results and corporate tax improved during the year 2006. Included in 2006 were net charges of $206 million related to a legal provision partly offset by Corporate tax credits versus net charges of $148 million in 2005 mainly in the Other Industry segment.
Note
All amounts shown throughout this report are unaudited.
First quarter results for 2007 are expected to be announced on May 3, 2007, second quarter results for 2007 are expected to be announced on July 26, 2007 and third quarter results are expected to be announced on October 25, 2007.
In this Report "Group" is defined as Royal Dutch Shell together with all of its consolidated subsidiaries. The expressions "Shell", "Group", "Shell Group" and "Royal Dutch Shell" are sometimes used for convenience where references are made to the Group or Group companies in general. Likewise, the words "we", "us" and "our" are also used to refer to Group companies in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. The expression "Group companies" as used in this Report refers to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which the Group has significant influence but not control are referred to as "associated companies" or "associates" and companies in which the Group has joint control are referred to as "jointly controlled entities". In this Report, associates and jointly controlled entities are also referred to as "equity accounted investments".
This document contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ''anticipate'', ''believe'', ''could'', ''estimate'', ''expect'', ''intend'', ''may'', ''plan'', ''objectives'', ''outlook'', ''probably'', ''project'', ''will'', ''seek'', ''target'', ''risks'', ''goals'', ''should'' and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Group's products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial market conditions in various countries and regions; (l) political risks, project delay or advancement, approvals and cost estimates; and (m) changes in trading conditions. All forward-looking statements contained in this Report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this Report. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this Report.
Please refer to the Annual Report and Form 20-F for the year ended December 31, 2005 for a description of certain important factors, risks and uncertainties that may affect Shell's businesses.
Cautionary Note to US Investors:
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We may use certain terms in this announcement that the SEC's guidelines strictly prohibit us from including in filings with the SEC. US Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575 and disclosure in our Forms 6-K file No 1-32575, available on the SEC's website www.sec.gov . You can also obtain these forms from the SEC by calling 1-800-SEC-0330.
February 1, 2007
Appendix 1: Royal Dutch Shell financial report and tables
Statement of income (see note 1)
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % 75,500 84,254 75,496 Revenue 1 318,845 306,731 +4 62,846 70,383 63,889 Cost of sales 262,989 252,622 ______ ______ ______ ______ ______ 12,654 13,871 11,607 +9 Gross profit 55,856 54,109 +3 Selling, distribution and 4,648 4,126 4,263 administrative expenses 16,616 15,482 630 401 502 Exploration 1,562 1,286 Share of profit of equity 1,661 1,358 1,389 accounted investments 6,671 7,123 Net finance costs and other (111) (60) 56 (income)/expense (279) (103) ______ ______ ______ ______ ______ 9,148 10,762 8,175 +12 Income before taxation 44,628 44,567 3,635 4,507 3,572 Taxation 18,317 17,999 ______ ______ ______ ______ ______ 5,513 6,255 4,603 Income from continuing operations 26,311 26,568 Income/(loss) from discontinued - - - operations - (307) ______ ______ ______ ______ ______ 5,513 6,255 4,603 +20 Income for the period 26,311 26,261 ====== ====== ====== ======= ======= ==== ==== ==== === === Income attributable to minority 230 313 235 interests 869 950 ______ ______ ______ ______ ______ Income attributable to 5,283 5,942 4,368 +21 shareholders 25,442 25,311 +1 ______ ______ ______ ______ ______
1. Revenue is stated after deducting sales taxes, excise duties and similar levies of $17,764 million in Q4 2006, $18,472 million in Q3 2006, $17,984 million in Q2 2006, $16,709 million in Q1 2006, $17,344 million in Q4 2005, $18,282 million in Q3 2005, $18,739 million in Q2 2005 and $17,912 million in Q1 2005.
Earnings by industry segment (see notes 2 and 5)
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % Exploration & Production: 3,007 2,650 2,836 +6 World outside USA 11,466 10,541 +9 703 1,093 725 -3 USA 3,729 3,697 +1 ______ ______ ______ ______ ______ 3,710 3,743 3,561 +4 15,195 14,238 +7 ______ ______ ______ ______ ______ Gas & Power: 581 621 465 +25 World outside USA 2,393 1,526 +57 1 166 65 USA 257 47 ______ ______ ______ ______ ______ 582 787 530 +10 2,650 1,573 +68 ______ ______ ______ ______ ______ Oil Products (CCS basis): 1,254 1,665 1,583 -21 World outside USA 5,322 5,787 -8 215 495 315 -32 USA 1,705 1,745 -2 ______ ______ ______ ______ ______ 1,469 2,160 1,898 -23 7,027 7,532 -7 ______ ______ ______ ______ ______ Chemicals (CCS basis): 233 348 155 +50 World outside USA 1,063 868 +22 40 (13) (147) USA 32 (86) ______ ______ ______ ______ ______ 273 335 8 1,095 782 +40 ______ ______ ______ ______ ______ (18) (4) (110) Other industry segments (37) (202) ______ ______ ______ ______ ______ 6,016 7,021 5,887 +2 TOTAL OPERATING SEGMENTS 25,930 23,923 +8 ______ ______ ______ ______ ______ Corporate: 1 35 51 Interest income/(expense) 75 (22) Currency exchange gains/ 93 (19) (145) (losses) 113 (65) 170 248 (73) Other - including taxation 126 (234) ______ ______ ______ ______ ______ 264 264 (167) 314 (321) ______ ______ ______ ______ ______ (265) (337) (279) Minority interests (879) (871) ______ ______ ______ ______ ______ 6,015 6,948 5,441 +11 CCS EARNINGS 25,365 22,731 +12 ______ ______ ______ ______ ______ CCS adjustment for Oil (732) (1,006) (1,073) Products and Chemicals 77 2,580 ______ ______ ______ ______ ______ Income attributable to shareholders of Royal Dutch 5,283 5,942 4,368 +21 Shell plc 25,442 25,311 +1 ______ ______ ______ ______ ______
Summarised balance sheet (see notes 1 and 7)
$ million Dec 31 Sep 30 Dec 31 ASSETS 2006 2006 2005 Non-current assets: Intangible assets 4,808 4,697 4,350 Property, plant and equipment 100,988 96,133 87,558 Investments: equity accounted investments 20,740 19,453 16,905 financial assets 4,493 3,914 3,672 Deferred tax 2,968 2,664 2,562 Prepaid pension costs 3,926 3,459 2,486 Other 5,468 4,598 4,091 ______ ______ ______ 143,391 134,918 121,624 ______ ______ ______ Current assets: Inventories 23,215 23,391 19,776 Accounts receivable 59,668 63,895 66,386 Cash and cash equivalents 9,002 11,240 11,730 ______ ______ ______ 91,885 98,526 97,892 ______ ______ ______ ______ ______ ______ TOTAL ASSETS 235,276 233,444 219,516 ______ ______ ______ LIABILITIES Non-current liabilities: Debt 9,713 7,665 7,578 Deferred tax 13,094 12,485 10,763 Retirement benefit obligations 6,096 6,298 5,807 Other provisions 10,355 8,793 7,385 Other 4,325 4,346 5,095 ______ ______ ______ 43,583 39,587 36,628 ______ ______ ______ Current liabilities: Debt 6,060 6,395 5,338 Accounts payable and accrued liabilities 62,556 64,445 69,013 Taxes payable 6,021 10,679 8,782 Retirement benefit obligations 319 284 282 Other provisions 1,792 1,763 1,549 ______ ______ ______ 76,748 83,566 84,964 ______ ______ ______ ______ ______ ______ TOTAL LIABILITIES 120,331 123,153 121,592 ______ ______ ______ Equity attributable to shareholders of Royal Dutch Shell plc 105,726 101,604 90,924 Minority interests 9,219 8,687 7,000 ______ ______ ______ TOTAL EQUITY 114,945 110,291 97,924 ______ ______ ______ TOTAL LIABILITIES AND EQUITY 235,276 233,444 219,516 ______ ______ ______
Summarised statement of cash flows (see notes 1 and 8)
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 CASH FLOW FROM OPERATING ACTIVITIES: 5,513 6,255 4,603 Income for the period 26,311 26,261 Adjustment for: 3,157 4,403 4,490 Current taxation 17,338 19,435 218 145 148 Interest (income)/expense 716 632 Depreciation, depletion and 3,306 3,365 2,787 amortisation 12,615 11,981 (292) (86) (210) (Profit)/loss on sale of assets (571) (1,313) Decrease/(increase) in net working 643 560 3,295 capital (4,052) (5,664) Share of profit of equity accounted (1,661) (1,358) (1,611) investments (6,671) (7,123) Dividends received from equity 1,422 1,450 1,441 accounted investments 5,488 6,709 Deferred taxation and other 219 133 (869) provisions 1,833 (1,515) 51 (299) 1,055 Other (266) (47) ______ ______ ______ ______ ______ Cash flow from operating activities 12,576 14,568 15,129 (pre-tax) 52,741 49,356 ______ ______ ______ ______ ______ (6,617) (4,489) (6,664) Taxation paid (21,045) (19,243) ______ ______ ______ ______ ______ 5,959 10,079 8,465 Cash flow from operating activities 31,696 30,113 ______ ______ ______ ______ ______ CASH FLOW FROM INVESTING ACTIVITIES: (7,065) (5,408) (5,447) Capital expenditure (22,922) (15,904) Investments in equity accounted (317) (126) (139) investments (851) (705) 605 289 396 Proceeds from sale of assets 1,611 2,310 Proceeds from sale of equity 201 37 212 accounted investments 282 4,313 Proceeds from sale of / (additions 55 (22) (1) to) financial assets 22 362 238 285 245 Interest received 997 863 ______ ______ ______ ______ ______ (6,283) (4,945) (4,734) Cash flow from investing activities (20,861) (8,761) ______ ______ ______ ______ ______ CASH FLOW FROM FINANCING ACTIVITIES: 1,442 (843) (1,773) Net increase/(decrease) in debt 2,106 (1,482) (344) (330) (311) Interest paid (1,296) (1,124) 364 287 250 Change in minority interests 1,434 1,143 (1,390) (2,801) (2,550) Net issue/(repurchase) of shares (8,047) (4,988) Dividends paid to: Shareholders of Royal Dutch Shell (2,130) (2,083) (1,869) plc (8,142) (10,556) (31) (53) (58) Minority interest (289) (293) Payment to former Royal Dutch - - (1,651) shareholders - (1,651) Treasury shares: Net sales/(purchases) and dividends 118 149 (37) received 493 378 ______ ______ ______ ______ ______ (1,971) (5,674) (7,999) Cash flow from financing activities (13,741) (18,573) ______ ______ ______ ______ ______ Currency translation differences relating to cash and cash 57 6 0 equivalents 178 (250) ______ ______ ______ ______ ______ INCREASE/(DECREASE) IN CASH AND CASH (2,238) (534) (4,268) EQUIVALENTS (2,728) 2,529 ______ ______ ______ ______ ______ Cash and cash equivalents at 11,240 11,774 15,998 beginning of period 11,730 9,201 Cash and cash equivalents at end of 9,002 11,240 11,730 period 9,002 11,730 Operational data - UpstreamQUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % thousand b/d CRUDE OIL PRODUCTION thousand b/d 533 433 510 Europe 496 541 352 346 370 Africa 339 373 251 254 227 Asia Pacific 242 228 480 489 455 Middle East, Russia, CIS 455 443 349 353 243 USA 322 333 130 81 75 Other Western Hemisphere 94 80 ______ ______ ______ ______ ______ Total crude oil production 2,095 1,956 1,880 excluding oil sands 1,948 1,998 106 98 106 Oil sands 82 95 ______ ______ ______ ______ ______ Total crude oil production 2,201 2,054 1,986 +11 including oil sands 2,030 2,093 -3 ______ ______ ______ ______ ______ million scf/d 1 NATURAL GAS PRODUCTION million scf/d 1 AVAILABLE FOR SALE 3,529 2,125 4,266 Europe 3,523 3,659 418 475 397 Africa 455 377 2,459 2,356 2,359 Asia Pacific (3) 2,421 2,250 268 273 332 Middle East, Russia, CIS (3) 291 328 1,173 1,186 919 USA 1,163 1,150 530 527 511 Other Western Hemisphere 515 499 ______ ______ ______ ______ ______ 8,377 6,942 8,784 -5 8,368 8,263 +1 ______ ______ ______ ______ ______ thousand boe/d 2 BARRELS OF OIL EQUIVALENT thousand boe/d 2 1,142 800 1,246 Europe 1,104 1,172 424 428 438 Africa 417 438 675 660 634 Asia Pacific (3) 659 616 526 536 512 Middle East, Russia, CIS (3) 505 500 551 557 401 USA 523 531 221 172 163 Other Western Hemisphere 183 166 ______ ______ ______ ______ ______ Total production excluding oil 3,539 3,153 3,394 sands 3,391 3,423 106 98 106 Oil sands 82 95 ______ ______ ______ ______ ______ Total production including oil 3,645 3,251 3,500 +4 sands 3,473 3,518 -1 ______ ______ ______ ______ ______
1 .scf/d = standard cubic feet per day; 1 standard cubic foot = 0.0283 cubic metre
2. Natural gas converted to oil equivalent at 5.8 million scf/d = thousand boe/ d
3. Q4 2005 and full year 2005 comparative figures for oil and gas production volumes have been reclassified in line with 2006 reported numbers to reflect a move of the Pakistan volumes from Asia Pacific to the Middle East region. The impact on total oil and gas volumes for both Q4 and full year 2005 is a reduction of 13 thousand boe per day in Asia Pacific and an increase of 13 thousand boe per day for the Middle East.
Operational data - DownstreamQUARTERS FULL YEAR Q4 Q3 Q4 2006 2006 2005 % 2006 2005 % thousand b/d thousand b/d REFINERY PROCESSING INTAKE 1,800 1,758 1,861 Europe 1,732 1,804 791 797 847 Other Eastern Hemisphere 808 849 933 965 916 USA 956 953 366 387 354 Other Western Hemisphere 366 375 ______ ______ ______ ______ ______ 3,890 3,907 3,978 -2 3,862 3,981 -3 ______ ______ ______ ______ ______ OIL SALES 2,232 2,256 2,271 Gasolines 2,206 2,404 732 750 791 Kerosenes 749 811 2,087 2,074 2,154 Gas/Diesel oils 2,106 2,296 715 729 814 Fuel oil 747 844 701 712 665 Other products 677 702 ______ ______ ______ ______ ______ 6,467 6,521 6,695 See 1 Total oil products (1) * 6,485 7,057 See 1 2,443 2,442 2,404 Crude oil (1) 2,472 3,695 ______ ______ ______ ______ ______ 8,910 8,963 9,099 See 1 Total oil sales (1) 8,957 10,752 See 1 ______ ______ ______ ______ ______ *comprising 1,976 1,948 2,119 Europe 1,973 2,093 1,248 1,215 1,219 Other Eastern Hemisphere 1,227 1,232 1,398 1,506 1,551 USA 1,471 2,013 654 658 714 Other Western Hemisphere 657 708 1,191 1,194 1,092 Export sales 1,157 1,011 CHEMICAL SALES VOLUMES BY MAIN thousand tones PRODUCT CATEGORY (2)** thousand tonnes 3,498 3,430 3,455 Base chemicals 14,146 13,710 2,188 2,200 2,154 First line derivatives 8,964 8,891 4 6 120 Other 27 225 ______ ______ ______ ______ ______ 5,690 5,636 5,729 -1 23,137 22,826 +1 ______ ______ ______ ______ ______ **comprising 2,233 2,232 2,506 Europe 9,361 10,018 1,474 1,385 1,362 Other Eastern Hemisphere 5,673 5,252 1,825 1,851 1,693 USA 7,464 6,893 158 168 168 Other Western Hemisphere 639 663
1. Certain contracts are held for trading purposes and reported net rather than gross with effect from Q3 2005. The effect in Q1 2006 is a reduction in Total Oil products sales of approximately 890 thousand b/d and a reduction in crude oil sales of approximately 1,720 thousand b/d, in Q2 2006 840 thousand b/d and 1,940 thousand b/d respectively, in Q3 2006 870 thousand b/d and 2,130 thousand b/d respectively and in Q4 2006 780 thousand b/d and 1,970 thousand b/d respectively.
2. Excluding volumes sold by equity accounted investments, chemical feedstock trading and by-products. Capital investmentQUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 Capital expenditure: Exploration & Production: 3,612 3,425 3,271 World outside USA 14,632 9,633 694 519 450 USA 2,006 1,225 ______ ______ ______ ______ ______ 4,306 3,944 3,721 16,638 10,858 ______ ______ ______ ______ ______ Gas & Power: 681 599 440 World outside USA 1,924 1,564 49 2 2 USA 53 4 ______ ______ ______ ______ ______ 730 601 442 1,977 1,568 ______ ______ ______ ______ ______ Oil Products: Refining: 292 251 359 World outside USA 1,158 1,107 87 75 119 USA 280 272 ______ ______ ______ ______ ______ 379 326 478 1,438 1,379 ______ ______ ______ ______ ______ Marketing: 714 569 554 World outside USA 1,786 1,254 59 36 77 USA 139 177 ______ ______ ______ ______ ______ 773 605 631 1,925 1,431 ______ ______ ______ ______ ______ Chemicals: 254 166 48 World outside USA 519 170 152 53 44 USA 302 217 ______ ______ ______ ______ ______ 406 219 92 821 387 ______ ______ ______ ______ ______ 269 1 95 Other segments 297 293 ______ ______ ______ ______ ______ 6,863 5,696 5,459 TOTAL CAPITAL EXPENDITURE 23,096 15,916 ______ ______ ______ ______ ______ Exploration expense: 235 161 215 World outside USA 649 555 106 67 143 USA 300 260 ______ ______ ______ ______ ______ 341 228 358 949 815 ______ ______ ______ ______ ______ New equity in equity accounted investments 226 112 95 World outside USA 537 373 49 3 2 USA 61 17 ______ ______ ______ ______ ______ 275 115 97 598 390 ______ ______ ______ ______ ______ New loans to equity accounted 42 11 42 investments 253 315 ______ ______ ______ ______ ______ 7,521 6,050 5,956 TOTAL CAPITAL INVESTMENT* 24,896 17,436 ______ ______ ______ ______ ______ *comprising 4,740 4,214 4,144 Exploration & Production 17,944 12,046 827 645 457 Gas & Power 2,200 1,602 1,178 962 1,127 Oil Products 3,457 2,844 412 219 118 Chemicals 877 599 364 10 110 Other segments 418 345 ______ ______ ______ ______ ______ 7,521 6,050 5,956 24,896 17,436 ______ ______ ______ ______ ______
Additional segmental information
$ million FULL YEAR 2006 2005 UPSTREAM: Exploration & Production segment earnings 15,195 14,238 Of which: Exploration 1,562 1,286 Depreciation, depletion & amortisation 8,844 8,152 Share of profit of equity accounted investments 3,075 4,112 ______ ______ Cash flow from operations 23,229 20,472 Less: Net working capital movements and taxation paid/accrued (2,644) 477 ______ ______ Cash flow from operations excluding net working capital movements and taxation paid/ accrued 25,873 19,995 ______ ______ Capital Employed 53,453 42,636 ______ ______ Gas & Power segment earnings: 2,650 1,573 Of which: Depreciation, depletion & amortisation 289 290 Share of profit of equity accounted investments 1,515 999 ______ ______ Cash flow from operations 2,212 448 Less: Net working capital movements and taxation paid/accrued (367) (1,396) ______ ______ Cash flow from operations excluding net working capital movements and taxation paid/ accrued 2,579 1,844 ______ ______ Capital Employed 17,706 14,198 ______ ______ DOWNSTREAM: Oil products segment CCS earnings: 7,027 7,532 Of which: Depreciation, depletion & amortisation 2,580 2,622 Share of profit of equity accounted investments 1,585 1,426 ______ ______ Cash flow from operations 3,593 10,138 Less: Net working capital movements and taxation paid/accrued (4,963) (1,956) ______ ______ Cash flow from operations excluding net working capital movements and taxation paid/ accrued 8,556 12,094 ______ ______ Capital Employed 42,245 34,262 ______ ______ Chemicals segment CCS earnings: 1,095 782 Of which: Depreciation, depletion & amortisation 668 599 Share of profit of equity accounted investments 494 201 ______ ______ Cash flow from operations 1,853 2,352 Less: Net working capital movements and taxation paid/accrued 475 105 ______ ______ Cash flow from operations excluding net working capital movements and taxation paid/ accrued 1,378 2,247 ______ ______ Capital Employed 8,468 8,522 ______ ______ Notes
NOTE 1. Accounting policies and basis of presentation
The quarterly financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the financial statements are also in accordance with IFRS as adopted by the European Union.
The Group's accounting policies are unchanged from those set out in Note 3 to the Consolidated Financial Statements of Royal Dutch Shell plc in the Annual Report and Form 20-F for the year ended December 31, 2005 on pages 110 to 113.
In the third quarter 2005 Royal Dutch Shell plc became the Parent Company of Royal Dutch Petroleum Company (Royal Dutch) and The ''Shell'' Transport and Trading Company, p.l.c. (Shell Transport) by acquiring all outstanding shares of Shell Transport and approximately 98.5% of the outstanding shares of Royal Dutch. The minority in Royal Dutch ceased to exist as of December 21, 2005 as a result of the merger of Royal Dutch and Shell Petroleum NV.
The comparative periods represent information for Royal Dutch Shell as if it had acquired 100% of Royal Dutch and Shell Transport for the whole of those periods. These financial statements give retroactive effect for all periods presented prior to the Unification Transaction, which has been accounted for using a carry-over basis of the historical costs of the assets and liabilities of Royal Dutch, Shell Transport and other companies comprising the Royal Dutch/ Shell Group of Companies. The interest of the minority shareholders in Royal Dutch was accounted for using a carry-over basis of the historical costs of its consolidated assets and liabilities.
Royal Dutch Shell has discontinued the publication of a Dutch translation of the Annual Report and Form 20-F. This document will now only be published in English. The Annual Review and Summary Financial Statements, a summary of the Annual Report and Form 20-F, will continue to be published in both English and Dutch.
NOTE 2. Earnings on an estimated current cost of supplies (CCS) basis
To facilitate a better understanding of underlying business performance, the financial results are also analysed on an estimated current cost of supplies (CCS) basis as applied for the Oil Products and Chemicals segment earnings. Earnings on an estimated current cost of supplies basis provide useful information concerning the effect of changes in the cost of supplies on Royal Dutch Shell's results of operations and is a measure to manage the performance of the Oil Products and Chemicals segments but is not a measure of financial performance under IFRS.
On this basis, Oil Products and Chemicals segment cost of sales of the volumes sold during the period is based on the cost of supplies during the same period after making allowance for the estimated tax effect, instead of use of the first-in, first-out (FIFO) method of inventory accounting. Earnings calculated on this basis do not represent an application of the last-in, first-out (LIFO) inventory basis and do not reflect any inventory draw down effects. The adjustment for the Chemicals segment was implemented in Q1 2006, historic periods have been restated accordingly.
NOTE 3. Discontinued operations
Income/(loss) from discontinued operations, which comprises gains and losses on disposals and results of operations for the period, is provided in the statement of income in accordance with IFRS for separate major lines of business or geographical area of operations.
Earnings by industry segment relating to discontinued operations, included within the segment earnings on page 14, are as follows:
QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 - - - Chemicals segment earnings - (307) Income/(loss) from discontinued - - - operations - (307)
Basic earnings per share for the fourth quarter 2006 for discontinued operations were nil.
NOTE 4. Return on average capital employed (ROACE)
ROACE on an income basis is the sum of the current and previous three quarters' income attributable to shareholders plus interest, less tax and minority interest as a percentage of the average of Royal Dutch Shell's share of closing capital employed and the opening capital employed a year earlier. The tax rate and the minority interest components are derived from calculations at the published segment level.
Components of the calculation ($ million):
2006 2005
Income attributable to shareholders (four quarters) 25,442 25,311
Royal Dutch Shell share of interest expense after tax 662 602
ROACE numerator 26,104 25,913
Royal Dutch Shell share of capital employed - opening 102,917 99,815
Royal Dutch Shell share of capital employed - closing 120,235 102,917
Royal Dutch Shell share of capital employed - average 111,576 101,366
ROACE 23.4% 25.6%
NOTE 5. Earnings by industry segment
Operating segment results are before deduction of minority interest and also exclude interest and other income of a non-operational nature, interest expense, non-trading currency exchange effects and tax on these items, which are included in the results of the Corporate segment. Operating segment results are after tax and include equity accounted investments. Segment results in accordance with International Accounting Standard 14 "Segment Reporting" will be disclosed in Royal Dutch Shell's 2006 Annual Report and Form 20-F, with a reconciliation to the basis as presented here.
NOTE 6. Gearing
The Group aims to maintain an efficient balance sheet with an average gearing ratio over time of between 20% and 25%. The numerator and denominator in the gearing calculation used by the Group is calculated by adding to reported debt and equity certain off-balance sheet obligations as at the beginning of the year such as operating lease commitments and unfunded retirement benefits (as applicable) which it believes to be in the nature of incremental debt, and deducting cash and cash equivalents judged to be in excess of amounts required for operational purposes. With effect from the fourth quarter 2006, the off-balance sheet obligations for the year-end calculation will be calculated using the data as at year-end instead of using the off balance sheet obligations as at the beginning of the year. The previous year has been recalculated accordingly.
Components of the calculation ($ million):
Dec 31 Dec 31 2006 2005 Non current debt 9,713 7,578 Current debt 6,060 5,338 ______ ______ Total Debt 15,773 12,916
Add: Net present value of operating lease obligations 11,319 9,442
Unfunded pension benefit obligations - 2,919 Less: Cash and cash equivalents in excess of operational requirements (7,102) (9,830) ______ ______ Adjusted Debt 19,990 15,447 ______ ______ Total Equity 114,945 97,924 ______ ______ Total Capital 134,935 113,371 ______ ______ Gearing ratio (adjusted debt as a percentage of total capital) 14.8% 13.6% NOTE 7. Equity
Total equity comprises equity attributable to shareholders of Royal Dutch Shell and to the minority interests. Other reserves comprises the capital redemption reserve, share premium reserve, merger reserve, share-based compensation reserve, cumulative currency translation differences, unrealised gains/(losses) on securities and unrealised gains/(losses) on cash flow hedges.
Ordinary share Treasury Other Retained Minority Total $ million capital shares reserves earnings Total interests equity At January 1, 2006 571 (3,809) 3,584 90,578 90,924 7,000 97,924 Income for the period - - - 25,442 25,442 869 26,311 Income/(expense) recognised directly in equity - - 4,671 - 4,671 38 4,709 Capital contributions from minority shareholders - - - - - 1,601 1,601 Effect of Unification - - 154 - 154 - 154 Dividends paid - - - (8,142) (8,142) (289) (8,431) Treasury shares: net sales/(purchases) and dividends received - 493 - - 493 - 493 Shares repurchased for cancellation (26) - 26 (8,201) (8,201) - (8,201) Share-based compensation - - 385 - 385 - 385 At December 31, 2006 545 (3,316) 8,820 99,677 105,726 9,219 114,945 Ordinary share Treasury Other Retained Minority Total $ million capital shares reserves earnings Total interests equity
At January 1, 2005 584 (4,187) 9,688 80,781 86,866 5,313 92,179
Income for the period - - - 25,311 25,311 950 26,261 Income/(expense) recognised directly in equity - - (4,366) - (4,366) 106 (4,260) Capital contributions from minority shareholders - - - - - 954 954 Effect of Unification - - (1,929) 30 (1,899) (30) (1,929) Dividends paid - - - (10,556) (10,556) (293) (10,849) Treasury shares: net sales/ (purchases) and dividends received - 378 - - 378 - 378 Shares repurchased
for cancellation (13) - 13 (4,988) (4,988) - (4,988)
Share-based compensation - - 178 - 178 - 178 At December 31, 2005 571 (3,809) 3,584 90,578 90,924 7,000 97,924
NOTE 8. Statement of cash flows
This statement reflects cash flows of Royal Dutch Shell and its subsidiaries as measured in their own currencies, which are translated into US dollars at average rates of exchange for the periods and therefore exclude currency translation differences except for those arising on cash and cash equivalents.
Cash from operating activities excluding net working capital movements, currenttaxation and taxation paid is calculated using the following line items fromthe cash flow statement:QUARTERS $ million FULL YEAR Q4 Q3 Q4 2006 2006 2005 2006 2005 5,959 10,079 8,465 Cash flow from operating activities 31,696 30,113 3,157 4,403 4,490 Current taxation 17,338 19,435 Decrease/(increase) in net working 643 560 3,295 capital (4,052) (5,664) (6,617) (4,489) (6,664) Taxation paid (21,045) (19,243) ______ ______ ______ ______ ______ 8,776 9,605 7,344 39,455 35,585 ______ ______ ______ ______ ______
NOTE 9. Earnings per Royal Dutch Shell share
The total number of Royal Dutch Shell shares in issue at the end of the period was 6,455.1 million. Royal Dutch Shell reports earnings per share on a basic and on a diluted basis, based on the weighted average number of Royal Dutch Shell (combined A and B) shares outstanding. Shares held in respect of share options and other incentive compensation plans are excluded in determining basic earnings per share.
Basic earnings per share calculations are based on the following weighted average number of shares (millions):
Full Full Q4 Q3 Q4 year year 2006 2006 2005 2006 2005 Royal Dutch Shell shares of euro 0.07 6,314.8 6,373.9 6,563.7 6,413.4 6,674.2
Diluted earnings per share calculations are based on the following weighted average number of shares (millions). This adjusts the basic number of shares for all share options currently in-the-money.
Full Full Q4 Q3 Q4 year year 2006 2006 2005 2006 2005 Royal Dutch Shell shares of euro 0.07 6,341.9 6,399.8 6,586.4 6,440.0 6,694.4
Basic shares at the end of the following periods are (millions):
Q4 Q3 Q4 2006 2006 2005 Royal Dutch Shell shares of euro 0.07 6,298.8 6,336.3 6,525.1
One American Depository Receipt (ADR) is equal to two Royal Dutch Shell shares.
NOTE 10. Reserves Replacement Ratio
The Reserve Replacement Ratio is a measure used by management to indicate the extent to which production is replaced by SEC proved oil and gas reserves and provable mining reserves (oil sands) additions during a particular period. The ratio is calculated based on barrels of oil equivalent and reflects changes resulting from revisions and reclassifications of previously reported reserves, improved recovery, extensions, discoveries and other additions. It includes the impact of sales and purchases of reserves in place.
Statement of Financial Accounting Standards No.69 requires separate disclosure of proved reserves associated with (i) consolidated entities and (ii) investments in entities that are accounted for in the financial statements using equity method accounting. The SEC has also advised Shell that they believe Reserve Replacement Ratio should be calculated on a similar basis. As noted, Shell's Reserve Replacement Ratio includes both SEC proved oil and gas reserves and provable mining reserves.
For Group companies, without equity accounted investments, the Reserves Replacement Ratio for 2006 is expected to be in the range of 200% to 220% including oil sands or 165% to 185% excluding oil sands.
The Reserve Replacement Ratio is not an indicator of future production because the ultimate development and production of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and other environmental risks.
In December 2006, Shell signed a protocol with Gazprom, which contemplates a reduction in Shell's 55% interest in Sakhalin II, in Russia, to a 27.5% interest, in exchange for a $4.1 billion cash payment. As an indication of the likely impact of this transaction on proven reserves in 2007, Shell has provided the following information. At the end of 2006, Sakhalin II was recorded in Shell's reserves on a fully consolidated basis, with net reserves of 0.8 billion barrel of oil equivalent (boe), consisting of approximately 1.5 billion boe for consolidated Group companies, offset by 0.7 billion attributable to Minority interests. On successful completion of this transaction, Shell's net share of these reserves would be reduced by approximately 0.4 billion boe and the remaining reserves of approximately 0.4 billion on a 2006 basis would be reclassified to Group share of equity accounted investments. This transaction is expected to close in 2007, and to reduce Shell's reserves from 2007.
* (from page 2) made up of SEC proved reserves additions of 1.6 to 1.7 billion boe from Group Companies, a reduction of 0.05 to 0.07 billion boe in proved reserves from equity accounted investments, and additions to provable mining reserves of 0.40 to 0.44 billion boe.
The information in these quarterly results reflects the consolidated financial position and results of Royal Dutch Shell plc ("Royal Dutch Shell"). All amounts shown throughout this report are unaudited. Registered Office: England, 4366849, Shell Centre, London, SE1 7NA, UK
ROYAL DUTCH SHELL 'B' PLCRelated Shares:
RDSA.LRDSB.L