Another Quarter of Earnings Gains for Shell

First-quarter earnings rose 30% year-on-year as project startups and margin gains outweighed the impact of asset sales

Catharina Milostan 28 April, 2011 | 5:15PM
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Royal Dutch Shell's (RDSB) success in executing growth strategies continued, with another quarter of earnings gains at both upstream and downstream businesses. Adjusted first-quarter earnings of $6.3 billion were 30% above year-ago earnings of $4.8 billion, as project startups and margin gains outweighed the impact of asset sales. Shell sold $3.2 billion of noncore assets during the quarter, keeping it on pace with asset sale goals. We're more encouraged by progress with major projects and margin gains, which should help drive earnings growth for Shell in upcoming quarters.

Higher oil and gas price realisations were more than enough to offset a 3% production decline to boost upstream earnings 8% to $4.6 billion. Downstream earnings more than doubled to $1.7 billion from year-ago levels thanks to higher refining margins and refinery intake volume from reduced planned and unplanned maintenance activities. We were impressed by project milestones on the upstream side with the startup of the Qatar 4 project in Qatar and production ramp-ups at Gbaran Ubie in Nigeria and Jackpine Mine at the Athabasca oil sands project in Canada. The first-quarter production decline was below our expectations, but we look for new project startups later this year to drive production up to our 3% growth goal for 2011. Worth watching will be progress at Shell's Pearl gas-to-liquids project, where first gas flowed from Qatar's North Field, and Wheatstone liquefied natural gas potential in Australia. Shell's LNG sales volumes grew 4% during the quarter, in part to supply LNG to Japan. We look for new LNG production from Qatar 4 to drive further growth.

On the downstream side, Shell more than doubled earnings to $1.7 billion thanks to gains in refining margins, refinery intake volumes and utilisation, and chemical margins. We were also encouraged by Shell's progress in downstream asset sales in a tough market, with agreements to sell its U.K. Stanlow refinery for $1.3 billion, downstream assets in Africa for $1 billion, and most of its downstream business in Chile for $0.6 billion.

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Catharina Milostan  Catharina Milostan is a stock analyst with Morningstar.

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