Strong production output and growth throughout 2010 have resulted in Dutch oil and gas giant Shell achieving US$18.6 billion in earnings, an incredible 90% increase from $9.8 billion in its 2009 earnings.
The impressive earnings were boosted by higher fourth quarter oil prices and improved chemicals margins providing an extra boost.
However the higher oil prices had affected the company’s downstream marketing margins which experienced volatility as a result, dented its earnings. Pressure in certain regional natural gas prices also had a negative affect.
“Our 2010 earnings increased substantially from 2009 levels, driven by improving industry fundamentals, and Shell’s production growth and cost performance. Our 2010 oil and natural gas production volumes were 3.3 million barrels of oil equivalent per day (boe/d), an increase of 5%. LNG sales volumes increased by 25%, with continued growth in downstream,” commented Shell chief executive officer Peter Voser.
“In 2010 Shell made good progress on implementing strategy, improving near-term performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders.
“Shell has a strong focus on continuous improvement, reducing costs, enhancing Shell’s operating performance, and rebalancing the portfolio for profitable growth. Underlying costs declined by $2 billion in 2010 compared to 2009, bringing the total underlying cost reduction to some $4 billion for 2009 and 2010 combined, a reduction of some 10%.”
Turning to growth delivery, Voser said: “Shell’s industry-leading investment programme is laying down firm foundations for our shareholders and our customers in the future. In 2010 we started up 6 key projects in Upstream and Downstream. In Qatar, in early 2011, we achieved first offshore gas production at the Qatargas 4 LNG facility. Major construction is complete, on schedule, at the Pearl Gas-to-Liquids (GTL) plant, and commissioning for start-up is underway as planned.
“These projects underpin Shell’s targets for an 11% increase from 2009 to 2012 oil and natural gas production, and enhancement of the Downstream portfolio. This growth will drive a 50-80% increase in cashflow from operations from 2009 to 2012, measured at $60-$80 oil prices. These are ambitious targets, but we are on track,” Voser added.
“Shell has made good progress on generating longer-term growth during 2010. Shell took two final investment decisions in 2010 for deepwater projects, the Mars B project in the Gulf of Mexico, USA and BC-10 Phase 2 project in Brazil.
Shell made $7 billion of acquisitions, and invested $3 billion in exploration activities in 2010. The acquisition of East Resources takes our resources potential in North America tight gas to some 40 tcfe. In partnership with PetroChina, we purchased Arrow Energy, an Australian coal bed methane and LNG player, and entered into new tight gas and coal bed methane acreage in China. Shell and its partners signed contracts to develop the giant Majnoon and West Qurna fields in Iraq. Shell’s explorers made 8 discoveries in 2010, in particular the Appomatox discovery in the Gulf of Mexico, with more than 250 million boe resources potential. In Downstream, we progressed a marketing and biofuels joint venture with Cosan in Brazil, and a new 2 million tonnes per year petrochemicals project in Qatar.”
Voser concluded: “We are making good progress against our targets, and there is more to come from Shell.”
Upstream
Shell’s upstream earnings for 2010 were $15.93 billion compared to $8.35 billion in 2009. Earnings included a net gain of $1.49 billion related to identified items, compared to a net charge of $134 million in the full year 2009.
Upstream earnings compared to the full year 2009 reflected the significant impact of higher realised crude oil and natural gas prices, increased production volumes and lower depreciation and exploration well write-off expenses. These were partly offset by higher production taxes and lower trading contributions. In addition, earnings reflected increased LNG sales volumes and improved LNG realised prices.
Global liquids realisations were 32% higher than in the full year 2009. Global gas realisations were 2% higher than a year ago. In the Americas, gas realisations increased by 13% and outside the Americas, gas realisations were in line with the full year 2009.
Full year 2010 production increased by 5% to 3.31 million boe/d from 3.14 million boe/d a year ago. Crude oil production was up 2% and natural gas production increased by 10% compared to the full year 2009 production. In Nigeria, Shell’s share of Shell Petroleum Development Nigeria Company (SPDC) joint venture production increased by some 120 thousand boe/d driven by the ramp-up of new projects and improved security conditions.
Production, compared to the full year 2009, increased by some 170 thousand boe/d from new field start-ups and the continuing ramp-up of fields in 2010, more than offsetting field declines.
LNG sales volumes of 16.76 million tonnes were 25% higher than in 2009. Volumes mainly reflected the ramp-up in sales volumes from the Sakhalin II LNG project and increased volumes from Nigeria LNG.
Downstream
The company’s downstream 2010 earnings were $2.95 billion compared to $258 million in 2009. Earnings included a net charge of $923 million related to identified items, compared to a net charge of $1.68 billion in the full year 2009.
Downstream earnings compared to the full year 2009 reflected higher Oil Products marketing earnings, improved refining contributions and higher Chemicals earnings.
Oil Products marketing earnings improved compared to a year ago, mainly reflecting higher retail and lubricants earnings, and lower operating expenses, which were partly offset by lower B2B earnings and reduced trading contributions.
Oil Products sales volumes increased by 5% compared to 2009. Excluding the impact of divestments, sales volumes increased by 6%.
Refining results improved from the full year 2009, benefiting from higher realised refining margins globally and higher refinery plant intake volumes, mainly in the Asia Pacific region. Refinery availability was 92% compared to 93% in the full year 2009.
Chemicals earnings compared to the full year 2009 reflected improved realised chemicals margins, higher chemicals sales volumes, higher income from equity-accounted investments and lower operating expenses.
Chemicals sales volumes increased by 13% compared to the full year 2009, mainly due to start-up of the Shell Eastern Petrochemicals Complex in Singapore. Chemicals manufacturing plant availability increased to 94% from 92% in the full year 2009.
