By TOBY STERLING - AP Business Writer - Associated Press
Tuesday, October 27, 2009
Royal Dutch Shell PLC is scheduled to report its third-quarter results on Thursday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Shell's third quarter earnings are set to fall sharply, mostly due to weaker demand and lower oil prices. Crude prices have recovered from 2009 lows, but are still 40 percent below third quarter 2008 levels.
Europe's largest oil company also booked one-time gains of $2 billion in the third quarter a year ago, so net profit this quarter will suffer by comparison.
Refining margins are also expected to be weak.
Amid this overall negative picture, analysts will be watching to see whether Shell has managed to cut costs and wring concessions out of its suppliers, as promised.
Shell's major European rival BP PLC beat earnings estimates by a wide margin Tuesday as a result of its successful cost-cutting program, setting the bar high for Shell.
Part of BP's success was due to increased production at profitable wells in the Gulf of Mexico, and it is doubtful Shell will be able to match that performance. However, the company could surprise the market with an increase in production as new fields, notably a large gas field on Sakhalin Island in Russia, have come on line this year.
BY THE NUMBERS: Analysts polled by Shell itself expect the company to post a 69 percent fall in earnings, stripping out the effects of price changes on inventory, to 40 cents per share.
In the third quarter of 2008, Shell earned $8.04 billion on the same basis. That translates to $1.31 per share, on sales of $132 billion.
WHAT'S AHEAD: Shell's production has been declining for a decade, and it has vowed to return to growth by next year. To do so, it is carrying out the largest capital expenditure program in the business, $63 billion over 2008-9 — a bold move during a downturn.
At the same time, Shell announced a 5 percent dividend increase at the start of 2009, and will spend $10 billion on dividends this year.
Analysts believe that Shell's spending on capex and dividends is unsustainable at current profit levels. The company must boost earnings by both cutting costs and increasing production or something will have to give.
STOCK PERFORMANCE: Shell shares have rallied strongly off their March low of €15.27. At €21.22 on Tuesday, they are within striking distance of their 12-month high of €23.15 reached in November 2008. They have performed in line with the Amex Oil Index since the start of the 2009.