After a mind blowing performance in the third quarter, is it really any surprise that Shell’s current cost of supply (CCS) net profits have fallen 28 per cent year-on-year in Q4 to $3.89bn?
Here are the highlights (our emphasis):
4TH QUARTER AND FULL YEAR 2008 UNAUDITED RESULTS
* Royal Dutch Shell’s fourth quarter 2008 earnings, on a current cost of supplies (CCS) basis, were $4.8 billion compared to $6.7 billion a year ago. Basic CCS earnings per share decreased by 27% versus the same quarter a year ago.
* Full year 2008 CCS earnings were $31.4 billion compared to $27.6 billion for the full year 2007. Basic CCS earnings per share for the full year 2008 increased by 16% when compared to 2007.
* Cash flow from operating activities for the fourth quarter 2008 was $10.3 billion. Net capital investment for the quarter was $6.8 billion. Total cash returned to shareholders, in the form of dividends and share repurchases, was $2.7 billion.
* A fourth quarter 2008 dividend has been announced of $0.40 per share, an increase of 11% over the US dollar dividend for the same period in 2007.
* The first quarter 2009 dividend is expected to be declared at $0.42 per share, an increase of 5% compared to the first quarter 2008 US dollar dividend.
The oil major has also revealed a $351m charge related to currency effects – something we should, errr, not be expecting from BP (who operate their own currency dealing room to guard exactly against such effects).
Analysts had expected a fourth quarter CCS result of $4.1bn. The dividend is up nevertheless by 5 per cent and Royal Dutch Shell shares opened about 0.5 per cent lower in London trading (FTSE being off 1 per cent), suggesting investors have lapped up the results regardless.
Digging deeper into the results, however, it seems the worst performance in the quarter came out of the group’s Canadian oil sands and chemicals businesses, down $30m and $19m on CCS basis respectively. The actual hit on Shell’s chemicals inventories, however, was $831 mn on the back of weaker chemical/ naphtha prices and lower global demand.
But if we’re talking hits to inventories it’s actually the oil products business that took the sharpest mark-to-market writedown. As we highlight:
Fourth quarter Oil Products segment results were a loss of $6,416 million, reflecting the result of oil products net realised inventory effects due to declining prices, compared to earnings of $2,556 million for the same period last year.
That is a differential of some $10 bn year on year – no small loss. What this demonstrates in particular is the degree to which even a refining/products business within an integrated oil company is suffering because of the global slowdown. As Shell explains:
CCS earnings compared to the fourth quarter 2007 reflected lower refinery intake volumes and lower total oil products sales volumes as a consequence of reduced worldwide demand, and impairment charges, which were partly offset by higher realised refining margins, higher marketing margins and increased trading contributions. In addition currency exchange rate effects, mainly related to the strengthening of the US dollar against most major currencies, also negatively impacted fourth quarter 2008 earnings.Industry refining margins compared to the same quarter a year ago were higher in Europe and the Asia-Pacific region and declined in the US Gulf Coast and US West Coast. Refinery availability was 90%, compared to 94% in the fourth quarter of 2007.
From the above it seems it’s not even the margins that have led to the losses, they appear to be having trouble shifting the product in the first place.
All in all not a good time to be a refiner, as the case of Lyondell Basell shows.
Related links:
Those ‘big four’ oil major results again – FT Alphaville
Lyondell Basell files for bankruptcy - FT Alphaville
Oh, Canadian oil sands – FT Alphaville