Shell Profit Rises, BG Synergies Grow
Third-quarter profits almost trebled for Anglo-Dutch major Shell this year reaching $4.1bn, compared with last year's $1.38bn, as its average barrel of oil sold for 16% more while its average gas price rose 21% relative to the same period last year, it said November 2.
On a current cost of supplies basis, profits rose from $1.5bn to $3.7bn. Its chemicals division also did well, making a 15% return on average capital employed over the last five years but this was a record 19% in Q3.
CFO Jessica Uhl told journalists that the company was among the best in its class, in terms of improved cashflow, and was now "radically different" from just a few years ago. "Many of our metrics are at the top of the sector," she said, mentioning also the role played by the purchase of BG
Shell's Q3 2017 oil and gas production was 3.657mn barrels of oil equivalent/day (boe/d), down 1% compared with Q3 2016. But production was up 2% for the first nine months relative to 2016. New field start-ups and the continuing ramp-up of existing fields, in particular Lula, Iracema and Sapinhoá in the Santos Basin in Brazil, Kashagan in Kazakhstan, as well as Stones, Olympus and Mars in the US Gulf of Mexico, contributed an extra 243,000 boe/d to production, relative to the third quarter 2016.
This more than offset the impact of field declines and divestments, such as the North Sea package that Chrysaor bought – she said no more material announcements would be made, of that kind, in the North Sea, where it retains 100,000 boe/d and which remains an important sphere of operations for Shell. The supermajor said November 1 it will book an accounting gain of $1bn on its divestment of (mostly ex-BG) assets to Chrysaor.
During Q3, the Shell-operated joint venture in Nigeria announced first production of Phase 2 of the Gbaran-Ubie integrated oil and gas development. Peak production of around 175,000 boe/d is expected in 2019, with the gas going both to export as LNG and to local markets. Shell has a 30% stake.
Uhl said that the company had also cut its debt gearing to 25.4%, down from 29.2% at the end of Q3 2016, and it will continue to keep an eye on costs. However the strong oil price would not push up its own costs, she said, as it had changed the way it did its business since buying BG, with some activities now being done at 20% or even 70% more cheaply than before and with further progress still to be made.
Despite this year's expectation of low LNG prices, Uhl said the market was robust and absorbing additional cargoes: thus Gorgon LNG now has three trains in operation, compared with one in Q3 2016, and further Shell, as a portfolio player, had "fantastic" positions both on the supply and the demand side globally. It sold 11% more LNG, totalling 17mn metric tons, which includes a growing proportion of third-party LNG. Prices are also up, she said.
She said its west coast, LNG Canada, project was one of the better options for new liquefaction capacity, but hedged that, saying that there was "fierce competition" for capital within Shell and only the most competitive would be chosen." She said few final investment decisions had been taken lately but that LNG Canada was "one of the very good options that we have." Generally she said LNG was the fastest-growing hydrocarbon in the next decade
She did not comment on the financial provision that Shell might have made for further reductions in output in the Netherlands, saying only that their operating company Nam, a joint venture with ExxonMobil, was working with stakeholders and the government to ensure safe production from the Groningen field in future.
CEO Ben van Beurden said in a statement: “Shell’s three businesses all made resilient contributions to this strong set of results. Upstream generated almost half of the $10bn cash flow from operations excluding working capital this quarter, at an average Brent oil price of $52/barrel, and this was complemented by good cash contributions from our growing Integrated Gas business and from Downstream. This competitive performance is further evidence of Shell’s growing momentum, and strengthens my firm belief that our strategy is working.”
William Powell