Royal Dutch Shell's Q1 Earnings Beat On Refining Gains

Europe’s largest oil company Royal Dutch Shell (LONDON:RDSa) reported better-than-expected first quarter earnings due to strong refining profitability, lower spending and contribution from certain high-margin projects.

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 $1.02. This was well above the Zacks Consensus Estimate of 70 cents.

However, Shell’s performance deteriorated from the year-ago adjusted profit of $2.33 per ADR amid a plunge in crude prices and lower natural gas production. Moreover, revenues were down 40.1% to $65.7 billion.

The Hague-based group is the second of the integrated supermajors to come out with third quarter results. On Tuesday, Shell’s continental rival BP plc (LONDON:BP) also beat earnings forecasts despite lower oil prices. U.S. biggies Exxon Mobil Corp (NYSE:XOM) and Chevron Corp. (NYSE:CVX) are scheduled to report later this week.

Segmental Performance

Upstream: Upstream segment earnings during the quarter (excluding items) were $675 million, a considerable decline from the $5.7 billion (adjusted) earned in the year-ago period.

This primarily reflects the impact of significantly lower oil and gas prices, together with reduced trading contribution. To some extent, these factors were negated by high-margin production, and lower costs.

Shell’s upstream volumes averaged 3,166 thousand oil-equivalent barrels per day (MBOE/d), 2.4% lower than the year-ago period. While natural gas volumes fell 7.9%, crude oil output was up 4.1%. Liquids contributed approximately 49% 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 Bonga NW in Nigeria, Mars B and Cardamom in the Gulf of Mexico and Gumusut Kakap in Malaysia – that boosted output by roughly 137 MBOE/d. However, this was partially offset by the effect of field declines.

Shell’s worldwide realized liquids prices were 52% below their year-earlier levels and natural gas realizations fell 27% from the first quarter of 2014.

LNG equity sales volumes of 6.17 million tons were up 1% from the year-ago quarter, primarily on improved operational performance, partially offset by the divestment of its stake in Australia’s Woodside Petroleum.

Downstream: In the Downstream segment, the Anglo-Dutch super-major recorded a profit (excluding items) of $2.6 billion as against $1.6 billion in the year-ago period. The positive comparison reflects the impacts of higher refining margins, lower operating costs and strength in trading operations.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $7.1 billion, returned $3.3 billion to shareholders through dividends/share buybacks and spent $6.8 billion on capital projects.

Balance Sheet

As of Mar 31, 2015, Shell had $19.9 billion in cash and $43.8 billion in debt (including short-term debt). Net debt-to-capitalization ratio stood at approximately 12.4%.

Zacks Rank

Royal Dutch Shell currently retains a Zacks Rank #3 (Buy).

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