Business Context and Reporting Period
This Form 6-K filing by Royal Dutch Shell plc covers the fourth quarter and full year 2013, reported on January 30, 2014. The results are presented on an unaudited basis using the Current Cost of Supplies (CCS) methodology. The reporting period reflects a challenging environment characterized by lower commodity prices, weak downstream industry conditions, and operational disruptions in Nigeria.
Key Financial Metrics
| Metric | Q4 2013 | Q4 2012 | Full Year 2013 | Full Year 2012 |
|---|---|---|---|---|
| CCS Earnings (Total) | $2.2 billion | $7.4 billion | $16.7 billion | $27.2 billion |
| CCS Earnings (Excl. Identified Items) | $2.9 billion | $5.6 billion | $19.5 billion | $25.3 billion |
| Income Attributable to Shareholders | $1.8 billion | $6.7 billion | $16.4 billion | $26.7 billion |
| Basic EPS (CCS) | $0.34 | $1.17 | $2.66 | $4.34 |
| Operating Cash Flow | $6.0 billion | $9.9 billion | $40.4 billion | $46.1 billion |
| Net Capital Investment | $15.8 billion | $10.4 billion | $44.3 billion | $32.6 billion |
| Gearing (Net Debt/Capital) | 16.1% | 9.8% | 16.1% | 9.8% |
| Return on Avg. Capital Employed | 7.9% | 13.6% | 7.9% | 13.6% |
Material Changes vs. Prior Period
- Earnings Decline: Full year 2013 CCS earnings fell 38% year-over-year, driven by lower upstream volumes, higher depreciation, increased exploration expenses, and weak downstream refining margins.
- Production Volumes: Total oil and gas production decreased 2% for the full year to 3,199 thousand boe/d. Q4 production dropped 5% to 3,251 thousand boe/d, impacted by security issues in Nigeria and higher maintenance activities.
- Downstream Performance: Refining incurred a loss in 2013 due to severe deterioration in industry conditions and narrower price differentials in North America. Oil products sales volumes were 1% lower for the full year.
- Capital Allocation: Net capital investment increased significantly to $44.3 billion in 2013 (up 36% from 2012), largely due to the Repsol LNG acquisition booked in Q4. Share buybacks totaled $5.0 billion for the year.
- Dividends: Total dividends distributed in 2013 were $11.3 billion. The Q4 2013 dividend was increased 5% to $0.45 per share.
Guidance, Outlook, and Risks
- Management Commentary: CEO Ben van Beurden stated that momentum slowed in 2013 and emphasized the need to improve financial results, achieve better capital efficiency, and strengthen project delivery.
- Portfolio Restructuring: Shell is reviewing its global refining portfolio due to excess capacity and North American light crude growth, which may lead to further asset sales, closures, or impairments. Specific divestments include interests in Czech Republic and Norway refineries.
- Reserves: The headline proved Reserves Replacement Ratio for 2013 is expected to be around 131% on an SEC basis. Total proved reserves are expected to be around 13.9 billion boe.
- Identified Items: Q4 2013 included a net charge of $763 million, primarily due to upstream impairments ($687 million) related to North American shale properties and the Kulluk drilling rig.
- Risks: Key risks include price fluctuations in crude oil and gas, currency fluctuations, security situations in operating regions (specifically Nigeria), and regulatory changes regarding climate change.
Investor Verification Checklist
- Impairment Details: Verify the specific valuation assumptions and future cash flow projections for the $687 million upstream impairment charge in North America.
- Refining Portfolio Review: Monitor the outcome of the global refining portfolio review for potential further asset sales or write-downs.
- Nigeria Operations: Assess the ongoing impact of the deteriorated security situation on production volumes and operational costs.
- Repsol LNG Integration: Track the integration progress and financial impact of the $3.8 billion Repsol LNG acquisition completed in January 2014.
- Capital Efficiency: Evaluate the company's ability to reduce capital intensity and improve Return on Average Capital Employed (ROACE) as management targets.