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LONDON (Alliance News) - Royal Dutch Shell PLC Wednesday said its earnings almost halved in the first quarter of the year, as it wrote down some of the value of its refineries in Europe and Asia due to declining refining margins and as its production fell.
However, like peer BP PLC, Shell said it would pay a higher dividend for the quarter as it returns some of the funds from its asset sale programme to its shareholders. That helped pushed its shares higher in early trade.
Reports from Shell, BP and France's Total SA have confirmed a trend for the oil majors: production is down, refining margins are under pressure, exploration is becoming more difficult and costly. The companies are keeping shareholders sweet by selling off assets in an attempt to improve profitability and increase payouts.
Shell's net profit was USD4.51 billion in the three months to end-March, compared with USD8.18 billion a year earlier. Its closely-watched earnings on a current cost of supplies basis was USD4.47 billion, down from USD7.95 billion.
The company booked a net charge of USDD2.86 billion, mainly reflecting impairments on its refineries in Asia and Europe, while revenue declined to USD109.66 billion, from USD112.81 billion.
Still, the company said it would pay a first quarter dividend of USD0.47 a share and USD0.94 per American Depositary Share, up 4% compared with last year's payout.
"The impairments we have announced today in downstream reflect Shell's updated views on the outlook for refining margins. There are substantial pressures on the industry from excess capacity, changing product demand, and new oil supplies from liquids-rich shales," Chief Executive Officer Ben van Beurden said in a statement.
Earlier this year, the company said it would sell about USD15 billion of assets in 2014-15, and restructure its refining and processing operations, its the downstream operations.
"The priorities I set out at the start of 2014 have not changed," van Beurden said. "We are making hard choices on Shell's assets and options, to improve capital efficiency, in both upstream and downstream."
"The divestments underway in downstream in four countries are part of Shell's drive to improve our
competitive position. Downstream has the potential to average 10-12% ROACE (return on average capital employed), more than double current levels, and to deliver around USD10 billion of annual cash flow," he added.
Shell's production was 3.2 million barrels of oil equivalent a day in the first quarter, down from 3.6 million a day a year earlier. The company said that excluding items including the impact of asset sales, license expiries, and the security problems in Nigeria, its production was down 4% on the year as it was hit by warm weather in Europe.
Royal Dutch Shell A shares were up 3.4% at 2,354.5 pence early Wednesday, the biggest rise on the FTSE 100.
By Steve McGrath; stevemcgrath@alliancenews.com; @SteveMcGrath1
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