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Summary of Royal Dutch Shell’s fourth quarter 2009 earnings

Posted on February 4, 2010 – 10:20 am | by oilandgaspress.com

Royal Dutch Shell’s fourth quarter 2009 earnings, on a current cost of supplies (CCS) basis, were $1.2 billion compared to $4.8 billion a year ago. Basic CCS earnings per share decreased by 76% versus the same quarter a year ago.
Fourth quarter 2009 CCS earnings, excluding identified items (see page 5), were $2.8 billion compared to $3.9 billion in the fourth quarter 2008.
Full year 2009 earnings, on a current cost of supplies (CCS) basis, were $9.8 billion compared to $31.4 billion a year ago. Basic CCS earnings per share decreased by 69% versus a year ago.
Cash flow from operating activities for the fourth quarter 2009 was $5.7 billion.
Net capital investment for the quarter was $7.2 billion. Total dividends paid to shareholders during the fourth quarter 2009 were $2.6 billion.
Gearing at the end of the fourth quarter 2009 was 15.5%.
A fourth quarter 2009 dividend has been announced of $0.42 per share, an increase of 5% over the US dollar dividend per share for the same period in 2008. The first quarter 2010 dividend is expected to be declared at $0.42 per share.

Royal Dutch Shell Chief Executive Officer Peter Voser commented:

“Our fourth quarter 2009 results were impacted by the weak global economy. Oil prices have increased compared to a year ago, but gas prices and refining margins have declined sharply, because of weaker demand and high industry inventory levels. We are not assuming that there will be a quick recovery, and the outlook for 2010 is uncertain.

Our strategy is on track, although the near-term industry outlook does remain challenging. We are taking steps to improve our performance, to bridge the company, and our shareholders, into a period of significant growth in the coming years.

We are making good progress on our plans to raise Shell’s competitive performance. The Transition 2009 programme, which was launched in mid-2009, is now completed. We have reduced complexity in the company, and our new organisation, announced in July 2009, is now fully up and running. Our Upstream organisation is simpler and our new Projects & Technology organisation makes for better technical integration on bigger projects and a sharper innovation focus along the value chain.

These changes, combined with our global Downstream organisation, and continued streamlining in the corporate functions, have created a powerful platform for future performance. We’re seeing a new way of working in Shell, with increased empowerment and accountability for our people.

As a result of our actions in 2009, some 5,000 employees will leave Shell, a reduction of 10% in the impacted areas. We have reduced underlying operating costs by some $1 billion in the fourth quarter 2009, and by over $2 billion in 2009 compared to 2008.

Downstream is facing some tough times. There is a significant overhang of industry refining capacity, exacerbated by the economic downturn. That’s why we have initiatives underway to refocus Shell’s Downstream footprint into fewer, more profitable markets with growth potential, through disposals and selective growth investment.

In 2009, Shell sold some $1.2 billion of non-core Downstream assets, bringing the five year total to $11 billion, and in early 2010 announced plans to close the 130 thousand barrels per day (b/d) Montreal East refinery in Canada. Asset sales will continue in 2010, with some 560 thousand b/d of refining capacity, 15% of Shell’s total, and selected marketing positions, under review.

Cost focus is now embedded in our day-to-day operations. For 2010, we are targeting a further underlying cost reduction of at least $1 billion, and a reduction of some 1,000 employees. Much of this will come from Downstream and ongoing cost initiatives in the corporate functions.

I am pleased with the portfolio progress in 2009. We had successful start-ups of Sakhalin II in Russia and BC-10 in Brazil, and these projects, plus Ormen Lange in Norway have completed their production ramp-ups. We have taken final investment decisions on two substantial new projects; Gorgon LNG in Australia, and Caesar/Tonga in the deep water Gulf of Mexico, and launched a front-end engineering and design study for floating LNG for the Prelude gas field in Australia. Exploration and appraisal performance in 2009 has been strong, with particularly good results in North America tight gas and Western Australia gas. I see exciting opportunities for the medium-term.”

Fourth quarter 2009 portfolio developments

In Australia, Shell confirmed that it has accepted Woodside Petroleum Ltd.’s entitlement offer of new shares at a total cost of $0.8 billion, maintaining its 34.27% share in the company.

In Iraq, Shell was awarded a contract as lead operator in developing the Majnoon field (Shell share 45%). Production is expected to reach 1.8 million barrels of oil equivalent per day (boe/d), up from a current level of approximately 45 thousand boe/d (100% basis). In addition, Shell was awarded a 15% share in a contract for the development of the West Qurna 1 field.

Shell has agreed an asset swap to acquire assets in Gabon and in the UK North Sea, in return for its interest in a pair of Norwegian offshore fields. This transaction, which is still subject to government approval and other requisite consents, is a strategic trade and no cash payment is involved.

In Egypt, Shell signed agreements to acquire a 40% holding and become the operator on the Alam El Shawish West Concession, where oil and gas discoveries have been confirmed.

In Bolivia and Brazil, Shell has sold its share in a gas pipeline and in a thermoelectric power plant and its related assets for a total of $100 million.

During 2009, Shell participated in 10 discoveries, in Australia, the US Gulf of Mexico, Malaysia and Norway. Shell is seeing particularly strong results from exploration and appraisal drilling in the North American Haynesville and Groundbirch tight gas areas, and offshore Western Australia. Shell also increased its overall acreage position, completing acquisitions of new exploration licences in Australia, Brazil, Canada, Guyana, Italy, Jordan, Norway and the USA and successfully bidding for new licences in Egypt, South Africa and French Guiana.

In Singapore, Shell announced the successful start-up of its new world-scale monoethylene glycol (MEG) unit at the Shell Eastern Petrochemicals Complex with a nameplate capacity of 750 thousand tonnes per annum.

Also in Singapore, Shell sold 49% of its share in two chemicals joint ventures (Petrochemical Corporation of Singapore and The Polyolefin Company).

In Australia and New Zealand, Shell announced the sale of its share in two bitumen joint ventures. The sale will be concluded in several phases and finalised by 2014.

Key features of the FOURTH quarter and full year 2009

Fourth quarter 2009 CCS earnings were $1,177 million, 75% lower than in the same quarter a year ago. Full year 2009 CCS earnings were $9,804 million, 69% lower than in 2008.
Fourth quarter 2009 CCS earnings, excluding identified items (see page 5), were $2,774 million compared to $3,888 million in the fourth quarter 2008.
Fourth quarter 2009 reported earnings were $1,961 million compared to a loss of $2,810 million in the same quarter a year ago. Full year 2009 reported earnings were $12,518 million compared to earnings of $26,277 million in 2008.
Basic CCS earnings per share decreased by 76% versus the same quarter a year ago. Full year 2009 basic CCS earnings per share decreased by 69% compared to 2008.
Cash flow from operating activities for the fourth quarter 2009 was $5.7 billion, compared to $10.3 billion in the same quarter last year. Excluding net working capital movements, cash flow from operating activities in the fourth quarter 2009 was $4.4 billion. Full year 2009 cash flow from operating activities was $21.5 billion compared to $43.9 billion in 2008.
Total dividends paid to shareholders during the fourth quarter 2009 were $2.6 billion, bringing the total for the full year 2009 to $10.5 billion.
Capital investment for the fourth quarter 2009 was $8.8 billion. Net capital investment (capital investment, less divestment proceeds) for the fourth quarter 2009 was $7.2 billion, bringing the total for the full year 2009 to some $29 billion.
Return on average capital employed (ROACE), on a reported income basis (see Note 3), was 8.0%.
Gearing was 15.5% at the end of the fourth quarter 2009 versus 5.9% at the end of the fourth quarter 2008.
Upstream

Oil and gas production for the fourth quarter 2009 was 3,331 thousand boe/d.
Full year 2009 oil and gas production was 3,152 thousand boe/d. Production for the fourth quarter and the full year 2009 excluding the impact of divestments, production sharing contracts (PSC) pricing effects and OPEC quota restrictions was 2% lower compared to the same periods last year.
Underlying production, in the fourth quarter and full year 2009, increased by some 200 thousand boe/d from new field start-ups and the continuing ramp-up of fields, more than offsetting the impact of field declines.
LNG sales volumes of 3.96 million tonnes in the fourth quarter 2009 were 18% higher than in the same quarter a year ago. Full year 2009 LNG sales volumes were 13.40 million tonnes compared to 13.05 million tonnes in 2008, an increase of 3%.
Downstream

Oil Products sales volumes were 2% lower than in the fourth quarter 2008. Chemical product sales volumes in the fourth quarter 2009 increased by 8% compared to the fourth quarter 2008.
The weak global economy impacted downstream sales volumes in 2009. Full year 2009 Oil Products sales volumes were 6% lower than in 2008. Full year 2009 Chemical product sales volumes decreased by 10% compared to 2008.
Oil Products refinery availability was 93% compared to 90% in the fourth quarter 2008 (93% for the full year 2009 versus 91% in 2008). Chemicals manufacturing plant availability was 95%, 2% higher than in the fourth quarter 2008 (92% for the full year 2009 versus 94% in 2008).
Supplementary financial and operational disclosure for the fourth quarter and full year 2009 is available at www.shell.com/investor.
Summary of identified items

Earnings in the fourth quarter 2009 reflected the following items, which in aggregate amounted to a net charge of $1,597 million (compared to a net gain of $897 million in the fourth quarter 2008), as summarised in the table below:

Upstream earnings included a net charge of $226 million, reflecting redundancy provisions and a net charge related to changes in the mark-to-market valuation and accounting of certain gas contracts, which were partly offset by a net gain related to asset impairment reversals, divestment gains and tax credits. Earnings for the fourth quarter 2008 included a net gain of $1,398 million.
Downstream earnings included a net charge of $1,335 million, reflecting asset impairments, redundancy and restructuring provisions, a charge related to the estimated fair value accounting of commodity derivatives (see Note 7), tax charges and provisions, which were partly offset by divestment gains. Earnings for the fourth quarter 2008 included a net charge of $405 million.
Corporate earnings and Minority interest included a charge of $36 million, related to redundancy provisions. Earnings for the fourth quarter 2008 included a charge of $96 million.

Fourth quarter Upstream earnings were $2,536 million compared to $4,663 million a year ago. Earnings included a net charge of $226 million related to identified items, compared to a net gain of $1,398 million in the fourth quarter 2008 (see page 5).

Upstream earnings compared to the fourth quarter 2008 reflected the impact of lower realised natural gas and LNG prices, lower oil production volumes and redundancy provisions. These impacts were partially offset by the effect of higher realised oil prices and increased LNG sales volumes compared to the fourth quarter 2008.

Fourth quarter 2009 oil prices increased compared to the fourth quarter 2008, while fourth quarter 2009 gas prices declined versus the fourth quarter 2008. The benefit from higher realised oil prices on fourth quarter 2009 earnings was more than offset by the combined effect of the reduction in worldwide natural gas prices and lower realised natural gas prices mainly due to time lag pricing effects in many of the natural gas and LNG sales contracts. A generally weak environment for natural gas marketing and trading activities also affected the fourth quarter 2009 earnings.

Global liquids realisations were 23% higher than in the fourth quarter 2008. Global gas realisations were 31% lower than in the same quarter a year ago. In the Americas, gas realisations decreased by 23% whereas outside the Americas, gas realisations decreased by 34%.

Fourth quarter 2009 production was 3,331 thousand boe/d compared to 3,415 thousand boe/d a year ago. Crude oil production was down 4% and natural gas production was broadly in line with the fourth quarter 2008.

Underlying production, compared to the fourth quarter 2008, increased by some 200 thousand boe/d from new field start-ups and the continuing ramp-up of fields over the last 12 months, more than offsetting field declines.

LNG sales volumes of 3.96 million tonnes were 18% higher than in the same quarter a year ago. Volumes reflected the continuous ramp-up in sales volumes from the Sakhalin II LNG project and Train 5 at the North West Shelf project and higher sales from Oman LNG, which were partly offset by lower volumes from Nigeria LNG.

Full year Upstream earnings were $8,354 million compared to $26,506 million in 2008. Earnings included a net charge of $134 million related to identified items, compared to a net gain of $3,487 million in the full year 2008 (see page 5).

Upstream earnings compared to the full year 2008 reflected the impact of significantly lower oil and gas prices and lower oil production volumes. These impacts were partially offset by increased LNG sales volumes, reflecting the continuous ramp-up in sales volumes from the Sakhalin II LNG project and Train 5 at the North West Shelf project, lower royalty and tax expenses and higher natural gas trading contributions compared to the full year 2008.

Global liquids realisations were 38% lower than in the full year 2008. Global gas realisations were 34% lower than a year ago. In the Americas, gas realisations decreased by 53% whereas outside the Americas, gas realisations decreased by 24%.

Full year 2009 production was 3,152 thousand boe/d compared to 3,248 thousand boe/d a year ago. Crude oil production was down 5% and natural gas production was in line with full year 2008 production.

Underlying production, compared to the full year 2008, increased by some 200 thousand boe/d from new field start-ups and the continuing ramp-up of fields in 2009, more than offsetting field declines.

LNG sales volumes of 13.40 million tonnes were 3% higher than in 2008. Volumes reflected the ramp-up in sales volumes from the Sakhalin II LNG project and Train 5 at the North West Shelf project, which was partly offset by lower volumes from Nigeria LNG and reduced LNG demand.

Fourth quarter Downstream CCS results were a loss of $1,762 million compared to earnings of $561 million in the fourth quarter 2008. Results included a net charge of $1,335 million related to identified items, compared to a net charge of $405 million in the fourth quarter 2008 (see page 5).

Downstream CCS results compared to the fourth quarter 2008 reflected substantially lower realised refining margins and lower refinery plant intake volumes, asset impairments, redundancy and restructuring provisions and non-cash pension charges, which were partly offset by lower operating costs and improved Chemicals earnings. In addition, adverse global downstream market conditions impacted the fourth quarter 2009 results through substantially lower marketing margins and reduced Oil Products sales volumes.

Oil Products marketing CCS earnings compared to the same period a year ago decreased due to lower retail and B2B earnings and reduced trading contributions, which were partly offset by improved lubricants contributions.

Oil Products sales volumes decreased by 2% compared to the same quarter last year, mainly because of lower B2B volumes, partly offset by increased retail sales volumes.

Industry refining margins declined significantly worldwide compared to the same period a year ago, impacting realised refining margins. The lower refinery plant intake volumes, which decreased by 4% compared to the same quarter last year, reflected the reduced demand for refined products coupled with new refining capacity brought on-stream.

Refinery availability was 93% compared to 90% in the fourth quarter 2008.

Chemicals CCS earnings compared to the fourth quarter 2008 reflected improved income from equity- accounted investments, higher sales volumes and lower operating costs, which were partly offset by lower realised chemicals margins.

Chemicals sales volumes increased by 8% compared to the same quarter last year. Chemicals manufacturing plant availability increased to 95%, some 2% higher than in the fourth quarter 2008.

Full year Downstream CCS earnings were $258 million compared to $5,309 million in the full year 2008. Earnings included a net charge of $1,682 million related to identified items, compared to a net charge of $435 million in the full year 2008 (see page 5).

Downstream CCS earnings compared to the full year 2008 were significantly impacted by the weak global economy, and reflected substantially reduced Oil Products refining and marketing earnings. In addition, earnings were impacted by asset impairments, redundancy and restructuring provisions and non-cash pension charges, which were partly offset by divestment gains and lower operating costs.

Oil Products marketing CCS earnings compared to the full year 2008 decreased mainly due to lower retail and B2B earnings, which were partly offset by higher lubricants and trading contributions.

Oil Products sales volumes decreased by 6% compared to 2008, mainly because of lower B2B volumes, partly offset by increased retail sales volumes. During 2009 Oil Products sales volumes were impacted worldwide by lower demand as a consequence of the weak global economy.

Industry refining margins for the full year 2009, compared to 2008, declined significantly worldwide, impacting realised refining margins. Reduced global demand for refined products coupled with new refining capacity brought on-stream led to lower refinery plant intake volumes, which decreased by 9% compared to 2008.

Refinery availability was 93% compared to 91% in the full year 2008.

Chemicals CCS earnings compared to the full year 2008 reflected improved income from equity-accounted investments and lower operating costs, which were partly offset by lower realised chemicals margins and lower chemicals sales volumes.

Chemicals sales volumes decreased by 10% compared to the full year 2008. Chemicals manufacturing plant availability decreased to 92%, some 2% lower than in the full year 2008.

Fourth quarter Corporate earnings and Minority interest were $403 million compared to a loss of $439 million for the same period last year. Earnings for the fourth quarter 2009 included a charge of $36 million related to an identified item compared to a charge of $96 million in the fourth quarter 2008 (see page 5).

Corporate earnings compared to the fourth quarter 2008 mainly reflected currency exchange gains and higher net interest income.

Full year Corporate earnings and Minority interest were $1,192 million compared to a loss of $449 million for the full year 2008. Earnings included net gains of $67 million related to identified items compared to a charge of $96 million in the full year 2008 (see page 5).

Corporate earnings compared to the full year 2008 mainly reflected currency exchange gains of $644 million compared to losses of $650 million in 2008.

FORTHCOMING EVENTS

First quarter 2010 results and first quarter 2010 dividend are scheduled to be announced on April 28, 2010. Second quarter 2010 results and second quarter 2010 dividend are scheduled to be announced on July 29, 2010. Third quarter 2010 results and third quarter 2010 dividend are scheduled to be announced on October 28, 2010. A Shell strategy update is planned on March 16, 2010.

Redundancy provisions related to the Transition 2009 programme impacted CCS earnings in the fourth quarter 2009 by some $0.9 billion.

Contacts:

Investor Relations: Europe: + 31 (0)70 377 4540; USA: +1 713 241 1042

Media: Europe: + 31 (0)70 377 3600

CAUTIONARY STATEMENT

All amounts shown throughout this Report are unaudited.

First quarter 2010 results and first quarter 2010 dividend are scheduled to be announced on April 28, 2010. Second quarter 2010 results and second quarter 2010 dividend, are scheduled to be announced on July 29, 2010. Third quarter 2010 results and third quarter 2010 dividend, are scheduled to be announced on October 28, 2010. A Shell strategy update is planned on March 16, 2010.

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this document “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this document refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control are referred to as “jointly controlled entities”. In this document, associates and jointly controlled entities are also referred to as “equity-accounted investments”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect (for example, through our 34% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.

This document contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’, “scheduled” and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this document, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Group’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional factors that may affect future results are contained in Royal Dutch Shell’s Annual Report and Form 20-F for the year ended December 31, 2008 (available at www.shell.com/investor and www.sec.gov). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this document, February 4, 2010. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this document.

The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this document that SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.

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