Royal Dutch Shell Beats on Earnings, Raises Dividend - Analyst Blog

Europe's largest oil company Royal Dutch Shell plc (RDS.A) reported better-than-expected first quarter earnings due to strong natural gas realizations and a jump in refining margins. Contribution from the recent acquisition of LNG (liquefied natural gas) properties from Spanish oil and gas company Repsol S.A. also aided results.  

Hague-based Shell reported earnings per ADR (on a current cost of supplies basis) – excluding one-time items and gains or losses from inventories – of $2.33. This was well above the Zacks Consensus Estimate of $1.62.

Along with the earnings beat, Shell also reported a jump in its cash flows and an increase in its dividend.

However, comparing year over year, Shell's adjusted earnings per ADR deteriorated 2.5% (from $2.39 to $2.33), while revenues were down 2.8% to $109.7 billion, reflecting sharply lower output.

The Hague-based group is the second of the integrated supermajors to come out with first quarter results. Yesterday, Shell's continental rival BP plc BP missed earnings forecasts but raised dividend and promised more share buybacks. U.S. biggies Exxon Mobil Corp. XOM and Chevron Corp. CVX are scheduled to report later this week.

Segmental Performance

Upstream: Upstream segment earnings during the quarter (excluding items) were $5.7 billion, a marginal rise from the $5.6 billion (adjusted) earned in the year-ago period.

This primarily reflects the impact of the recent purchase of Spain-based Repsol's LNG assets, together with higher payouts from an LNG unit and strengthening gas prices. To a large extent, these factors were negated by a fall in production, lower liquids realizations, plus higher exploration expenses and depreciation.

Shell's upstream volumes averaged 3,245.0 thousand oil-equivalent barrels per day (MBOE/d), down 8.8% from the year-ago period. Natural gas volumes declined 8.1%, while crude oil output was down 9.7% from the corresponding period last year. Crude oil contributed approximately 46% of Shell's total volumes, while natural gas accounted for the rest.

Production during the quarter compared with the year-ago quarter included volumes from new field start-ups and the continued ramp-up of existing fields – particularly Majnoon in Iraq – that boosted output by roughly 89 MBOE/d. However, this was comprehensively offset by lower-than-expected temperatures in Europe and the effect of field declines.

Shell's worldwide realized liquids prices were 4% below their year-earlier levels but natural gas realizations inched up 3% from the first quarter of 2013. In particular, natural gas prices in North America jumped 50% from the last year's level.

LNG equity sales volumes of 6.09 million tons were up 18% from the year-ago quarter, as contribution from the acquisition of Spain-based Repsol S.A.'s LNG properties and better operating performance in Nigeria were partially offset by more planned downtime at some LNG facilities.

Downstream: In the Downstream segment, the Anglo-Dutch super-major recorded a profit (excluding items) of $1.6 billion as against $1.8 billion in the year-ago period. The negative comparison reflects the impacts of weak marketing and trading contributions, somewhat offset by higher refining profitability in the U.S. Gulf Coast, strong contribution from the Motiva joint venture in the U.S., and favorable exchange rate fluctuations.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $14.0 billion, returned $4.0 billion to shareholders through dividends/share buybacks and spent $10.7 billion on capital projects.

In particular, cash flow was up 21.0% from the year-ago quarter, which allowed the group to raise its quarterly dividend 4% year over year to 47 cents per ordinary share.

Balance Sheet

As of Mar 31, 2014, Shell had $11.9 billion in cash and $45.7 billion in debt (including short-term debt). Net debt-to-capitalization ratio stood at approximately 15.6%.

Zacks Rank

Royal Dutch Shell currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.