Royal Dutch Shell Plc A Shares Euro0.07 (RDSA)

Company overview

Royal Dutch Shell PLC is a major global oil and natural gas exploration, production and marketing company. In addition, it is a producer of chemical products. The Group has operating companies in more than 90 countries worldwide. Employing just over 100,000 employees, the group estimates that it delivers 2pc of the world’s oil and 3pc of its gas needs. Approximately 44,000 Shell service stations operate worldwide, whilst some 35 refineries and chemical plants are in operation. The group is headquartered in The Hague, the Netherlands, but incorporated in England and Wales.

HL Comment (2 February 2012)

In weaker than expected results for its fourth quarter, due to weak refining margins and low natural gas prices, Royal Dutch Shell's fourth quarter results missed analyst estimates. Despite the weaker quarter, the Anglo-Dutch group set out an aggressive medium-term growth agenda that includes 30 new major development projects and higher exploration spending to boost cash flow. Europe's largest oil company said the clean current cost of supplies, (a keenly watched figure that strips out gains or losses from inventories and other non-operating items) was $6.45 billion, up 13% on the same period the year before. Full-year earnings were $28.6 billion, up 54% from a year ago. The group's refining and marketing operations recorded a loss of $278 million, in the fourth quarter of 2011, compared with a profit of $482 million in the same period the year before.

Negative Points:

• Shell's fourth quarter results were impacted by a sharp downturn in industry refining margins and North American natural gas prices.
• The oil giant warned of economic volatility amid sharply lower U.S. gas prices and worsening global fuel demand.
• Royal Dutch Shell's earnings are sensitive to changes in oil and natural gas prices, and refining margins, all of which can fluctuate significantly as a direct result of economic and geopolitical forces.
• Governments across the world continue to try to advance their share of the profits, whilst elements of the group's production (oil sands) generate higher costs than more traditional sources.
• The company's operating activities can be severely disrupted by the effects of natural disasters or industrial accidents.

Positive Points:

• High crude prices helped the company report a rise in earnings for the fourth quarter despite weak refining margins and low natural gas prices.
• Shell's capital investment will amount to about $30 billion in 2012, with more than 80% in exploration and production, of which 60% will be in North America and Australia, added management.
• The group is seeking to increase annual production to 3.5 million barrels of oil equivalent this year with a $100 billion investment plan through to 2014.
• Over the past 12 months, the company has built new positions in areas such as gas in Iraq and liquefied natural gas in the Asia-Pacific region.
• The board recommended a fourth-quarter dividend payment of $0.42 per ordinary share, unchanged from the same period in 2010. The group said it expected to declare a first-quarter dividend for 2012 of $0.43.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.