Business Context and Reporting Period
This Form 6-K filing by Royal Dutch Shell plc, dated January 17, 2014, provides an update on expected unaudited results for the fourth quarter and full year 2013. The official results are scheduled for announcement on January 30, 2014. The company operates in Upstream (exploration and production), Downstream (refining and marketing), and Corporate segments.
Key Financial Metrics
| Metric | Q4 2013 (Expected) | Q4 2012 (Restated) | Full Year 2013 (Expected) | Full Year 2012 (Restated) |
|---|---|---|---|---|
| Income Attributable to Shareholders ($B) | 1.8 | 6.7 | 16.4 | 26.7 |
| CCS Earnings ($B) | 2.2 | 7.3 | 16.8 | 27.2 |
| CCS Earnings Excl. Identified Items ($B) | 2.9 | 5.6 | 19.5 | 25.3 |
| Identified Items ($B) | (0.7) | 1.7 | (2.7) | 1.9 |
| Cash Flow from Operating Activities ($B) | 6.0 | 9.9 | 40.4 | 46.1 |
| Net Capital Investment ($B) | 15.8 | 10.9 | 44.3 | 29.8 |
| Gearing (%) | 16 | 9.8 | 16 | 9.8 |
Segment Performance (CCS Earnings Excl. Identified Items):
- Upstream: Q4 2013 expected at $2.5B (vs $4.4B in Q4 2012); Full Year 2013 expected at $15.1B (vs $20.1B in 2012).
- Downstream: Q4 2013 expected at $0.5B (vs $1.2B in Q4 2012); Full Year 2013 expected at $4.5B (vs $5.4B in 2012).
- Corporate: Q4 2013 expected at $(0.1)B; Full Year 2013 expected at $(0.1)B.
Material Changes Versus Prior Period
Profitability is expected to be significantly lower than recent levels due to weak industry conditions. Key drivers for the decline include:
- Upstream: Higher exploration expenses, lower volumes due to high maintenance activity (impacting gas-to-liquids and LNG), and a weakening Australian dollar. Upstream Americas continued to incur a loss, and security challenges persisted in Nigeria.
- Downstream: Significantly weaker refining conditions, particularly in Asia Pacific and Europe, and lower marketing and trading contributions. Chemicals earnings increased due to improved conditions.
- Identified Items: Q4 2013 includes a net charge of approximately $0.7B, and Full Year 2013 includes a net charge of $2.7B, primarily reflecting impairments in the Upstream segment.
- Capital Investment: Net capital investment increased significantly to $44.3B for the full year 2013 compared to $29.8B in 2012.
- Liquidity: Gearing is expected to rise to 16% at year-end 2013 from 9.8% in 2012.
Guidance, Outlook, and Risks
Management Commentary: CEO Ben van Beurden stated that 2013 performance did not meet expectations. The focus for 2014 is on improving financial results, achieving better capital efficiency, and strengthening operational performance and project delivery.
Upcoming Events:
- Official results and Q4 2013 dividend announcement: January 30, 2014.
- Annual Management Day: March 13, 2014 (London) and March 17, 2014 (New York).
Risks and Contingencies: The filing includes a cautionary statement regarding forward-looking statements. Key risks include price fluctuations in crude oil and natural gas, currency fluctuations, drilling and production results, political risks (including expropriation and sanctions), and regulatory developments regarding climate change. The filing notes that actual results could differ materially from expectations.
Investor Verification Checklist
- Verify the final audited figures for Q4 and Full Year 2013 when announced on January 30, 2014.
- Confirm the specific details of the $2.7B identified items and Upstream impairments.
- Monitor the impact of the 16% gearing ratio on future dividend sustainability and credit ratings.
- Assess the effectiveness of the stated strategy to improve capital efficiency in 2014.
- Review the final impact of the weakening Australian dollar and security situations in Nigeria on Upstream earnings.