Shell slashed on upstream slump

by on July 26, 2012 6:38 am BST

Although the Anglo-Dutch outfit posted higher upstream earnings, its bottom line was pummelled by slumping oil and gas prices.

Net profit came in at $4.07 billion, a huge slide from the $8.76 billion taken a year earlier.

Revenues for the three months to the end of June were $117.07 billion as compared with $121.26 billion.

The depreciation bill was up around $600 million while exploration costs were also higher.

Oil and gas production actually increased to 3.1 million barrels of oil equivalent per day, a rise of 4% excluding divestments, exits, production sharing contract price effects and onshore security issues in Nigeria which have continued to hit numbers.

Upstream easrnings were down 23% from $6.06 billion to $4.69 billion. The earnings included a net gain of $181 million on divestments and gas contracts but this was partly offset by charges related to Libya and an impairment on a net tax charge.

The upstream earnings in last year’s second quarter did, however, include a net gain of $641 million.

Downstream earnings slumped 28% from $1.88 billion to $1.36 billion. This was in part due to a net gain from a divestment of just $64 million as against a net gain in the 2011 second quarter of $802 million.

Chief executive Peter Voser commented: “We are moving forward in volatile times. Our profits have fallen with energy prices, but our growth strategy is delivering to the bottom line.”

He continued: “Our industry continues to see significant energy price volatility as a result of economic and political developments. Shell is implementing a long-term, consistent strategy against this volatile backdrop.”

Shell continued in Thursday’s result announcement: “Upstream earnings excluding identified items compared with the second quarter 2011 benefited from increased production volumes and higher LNG realisations. These items were more than offset by decreased liquids realisations, lower North American gas realisations, higher depreciation and increased exploration expenses.

“Earnings also reflected lower contributions from gas trading activities in North America and LNG, as well as the phasing of a dividend from an LNG venture into the third quarter of 2012.

“In addition, earnings were reduced by planned maintenance activities, which impacted production volumes by some 50 thousand boe/d and LNG sales volumes by some 0.3 million tonnes compared with the second quarter 2011.

“Global liquids realisations were 4% lower and synthetic crude oil realisations in Canada were 19% lower than in the second quarter 2011.

“Global natural gas realisations were 7% lower than in the same quarter a year ago. Natural gas realisations in the Americas decreased by 52%, whereas natural gas realisations outside the Americas increased by 2%.”

Despite Voser aiming to placate investors by insisting that “there is more to come from Shell”, shares began to slide in pre-opening trading in London, sitting down over 2% by around 08:00.