Shell has posted second quarter earnings of US$4.5bn compared to $2.3bn a year ago. In a statement the oil giant said it had exceeded the targets it set last year for costs and staff reduction and that it is putting new emphasis on “continuous improvement”, which it hopes will drive competitive financial and operating performance.
During the quarter, Shell participated in two exploration discoveries, and one appraisal, all in Australia. According to the the statement, the company also saw particularly strong results from exploration and appraisal drilling in the North American Haynesville tight-gas area.
Shell also increased its overall acreage position, completing acquisitions of new exploration licences in Canada, China, Qatar, Russia, Tunisia and the USA, and successfully bidding for new licences in Colombia and Italy.
In Qatar Shell signed a new Exploration and Production Sharing Agreement (EPSA) for Qatar Block D. Under the agreement, the partners will jointly explore for natural gas in an area of 8,089 square kilometres onshore and offshore Qatar. The total term of this agreement is 30 years and starts with a five-year first exploration period.
In Syria, Shell sold a 35% interest in Syria Shell Petroleum Development (SSPD), previously 100% owned, to China National Petroleum Corporation (CNPC). SSPD has interests in three production licences covering some 40 oil fields, with production in 2009 of approximately 20 thousand boe/d.
Shell chief executive officer Peter Voser commented:
“We are delivering on our strategy. Shell’s cost programmes have delivered over $3.5 billion of annualised underlying savings. Our investments have underpinned a 5% increase in oil and gas production for the quarter, a 34% increase in LNG sales volumes, and an 18% increase in chemicals sales volumes. This is a good performance from Shell, despite today’s challenging macro economic conditions. We are on track for growth.
“We are making good progress on delivering performance improvement, a new wave of production growth, and maturing the next generation of growth options for shareholders,” he added.
He said that the the corporate restructuring programme, called Transition 2009 which the company announced a year ago which is aimed at speeding up implementation of strategy, gaining a competitive focus and clearer accountability, is now complete.
“Transition 2009, restructuring in corporate functions, and our initiatives in Downstream have resulted in annualised underlying cost savings of over $3.5 billion, exceeding the target by around 15% and some 6 months ahead of schedule. Approximately 7,000 employees will leave Shell as a result of these changes, some 18 months earlier than planned,” he said.
“Capital efficiency is an important part of our continuous improvement drive. We will exit from non-core positions, both in upstream and downstream as we refocus our portfolio on material positions with growth potential. We expect $7-8 billion of asset sales in 2010-11, as we accelerate our disposal plans.”
Turning to longer term opportunities, Voser commented: “We continue to make good progress generating growth options. During the second quarter, we announced the acquisition of substantial new positions in US on-shore gas, with the purchase of East Resources, Inc., which is a leader in the Marcellus shale, and new acreage in the liquids-rich Eagle Ford shale gas play in South Texas.”
“We continue to see mixed signals in the global economy. Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure. Our earnings and cashflow have rallied from 2009’s lows, but the outlook remains uncertain.”
Commenting on the industry situation in the Gulf of Mexico, Voser said: “The BP Macondo blow-out and the related Gulf of Mexico oil spill is a tragedy for everyone affected. We were all shocked by the loss of life there, and the on-going and wide-spread impacts from the spill. World-wide deep water production has an important role to play in the global energy supply equation, with potential for production growth with supply diversity, and sustained investment in technology, jobs and services. The recent announcement of Shell’s participation in a new, $1 billion Gulf of Mexico oil spill containment system, is an example of where we are working with governments and partners to improve the industry’s capabilities. ”
Voser concluded: “I am pleased with the results in the second quarter 2010. We are putting the priority on a sharper delivery of our strategy, aiming for profitable growth and a more competitive performance from Shell.”
