Business Context and Reporting Period
This Form 6-K filing by Royal Dutch Shell plc presents the Unaudited Condensed Interim Financial Report for the third quarter ended September 30, 2014. The report covers the period from July 1, 2014, to September 30, 2014, and includes comparative data for the third quarter of 2013 and the nine-month periods ending September 30, 2014, and 2013.
Key Financial Metrics
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Revenue | $107.9 billion | $116.5 billion | $328.7 billion | $342.0 billion |
| Income Attributable to Shareholders | $4.5 billion | $4.7 billion | $14.3 billion | $14.6 billion |
| CCS Earnings | $5.3 billion | $4.2 billion | $14.9 billion | $14.6 billion |
| CCS Earnings Excl. Identified Items | $5.8 billion | $4.5 billion | $19.3 billion | $16.6 billion |
| Cash Flow from Operating Activities | $12.8 billion | $10.4 billion | $35.4 billion | $34.4 billion |
| Net Capital Investment | $4.8 billion | $9.4 billion | $16.1 billion | $28.5 billion |
| Dividends Paid (Q3) | $3.0 billion | N/A | $8.9 billion (9M) | N/A |
| Gearing | 11.7% | 11.2% | N/A | N/A |
| Return on Average Capital Employed | 7.7% | 10.4% | N/A | N/A |
Material Changes vs. Prior Period
- Earnings Growth: CCS earnings excluding identified items increased 31% year-over-year in Q3 2014, driven by improved Downstream and Upstream results. Basic CCS earnings per share excluding identified items rose 30%.
- Revenue Decline: Total revenue decreased 7% in Q3 2014 compared to Q3 2013, reflecting lower oil and gas prices and volumes.
- Production Volumes: Total oil and gas production decreased 5% to 2,790 thousand boe/d. However, excluding divestments and specific impacts (Abu Dhabi license expiry, Nigeria security), underlying production was 2% higher.
- Capital Discipline: Net capital investment dropped significantly by 49% to $4.8 billion in Q3 2014 compared to $9.4 billion in Q3 2013, reflecting a strategy to moderate spending on growth.
- Divestments: Proceeds from asset sales totaled $3.6 billion in Q3 2014, including the completion of sales in North America resources plays (Pinedale, Haynesville) and Australia Downstream businesses.
Outlook, Commentary, and Risks
- Management Commentary: CEO Ben van Beurden emphasized a focus on "better financial performance, enhanced capital efficiency and continued strong project delivery." The company is moderating growth spending and accelerating disposals of non-strategic assets. Proceeds from asset sales in 2014 reached $11.6 billion.
- Dividend and Buybacks: A Q3 2014 dividend of $0.47 per share (4% increase) was announced. The company is on track for over $30 billion in combined dividend distributions and buybacks for 2014 and 2015.
- Portfolio Developments: New production started in Nigeria (Bonga North West), the US Gulf of Mexico (Cardamom), and Malaysia (Gumusut-Kakap). Exploration successes were noted in Gabon, Malaysia, and the US.
- Risks and Contingencies:
- Moerdijk Incident: An incident in October at the Moerdijk chemical site in the Netherlands is being assessed; most units are expected to be out for the remainder of 2014, with impacts potentially extending into 2015.
- Market Volatility: The filing highlights risks related to price fluctuations in crude oil and natural gas, currency fluctuations, and political risks in developing countries.
- Deferred Tax Liability: A weakening Australian dollar increased a deferred tax liability, reducing earnings by approximately $400 million compared to Q3 2013.
Investor Verification Checklist
- Verify the impact of the October Moerdijk chemical site incident on Q4 2014 and 2015 earnings.
- Confirm the closing of the Haynesville dry gas asset sale to Vine Oil & Gas LP and Blackstone Group L.P. for $1.2 billion.
- Monitor the execution of the $30 billion shareholder return program (dividends and buybacks) for 2014-2015.
- Assess the sustainability of Upstream earnings growth given the 5% decline in total production volumes and lower oil prices.
- Review the status of the Shell Midstream Partners L.P. IPO (ticker: SHLX) and its impact on capital structure.