LONDON, January 29 /PRNewswire-FirstCall/ --
- Royal Dutch Shell's Fourth Quarter 2008 Earnings, on a
Current Cost of Supplies (CCS) Basis, Were $4.8 Billion Compared to
$6.7 Billion a Year ago. Basic CCS Earnings per Share Decreased by 27%
Versus the Same Quarter a Year ago.
- Full Year 2008 CCS Earnings Were $31.4 Billion Compared to
$27.6 Billion for the Full Year 2007. Basic CCS Earnings per Share for
the Full Year 2008 Increased by 16% When Compared to 2007.
- Cash Flow From Operating Activities for the Fourth Quarter
2008 was $10.3 Billion. Net Capital Investment for the Quarter was $6.8
Billion. Total Cash Returned to Shareholders, in the Form of Dividends
and Share Repurchases, was $2.7 Billion.
- A Fourth Quarter 2008 Dividend has been Announced of $0.40
per Share, an Increase of 11% Over the US Dollar Dividend for the Same
Period in 2007.
- The First Quarter 2009 Dividend is Expected to be Declared
at $0.42 per Share, an Increase of 5% Compared to the First Quarter
2008 US Dollar Dividend.
Royal Dutch Shell (NYSE: RDS.A) (NYSE: RDS.B) Chief Executive Jeroen van der Veer commented:
"We delivered satisfactory performance in the fourth quarter of 2008, given the pressure on demand for oil and gas due to a weaker global economy. Our strategy remains to pay competitive and progressive dividends, and to make significant investments in the company for future profitability. Industry conditions remain challenging, and we are continuing the focus on capital and cost discipline in Shell."
Summary of unaudited results
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
(2,810) 8,448 8,467 - Income attributable to 26,277 31,331 -16
shareholders
Less: Estimated CCS
adjustment for Oil Products
(7,595) (2,455) 1,783 and Chemicals (see Note 2) (5,089) 3,767
4,785 10,903 6,684 -28 CCS earnings 31,366 27,564 +14
(0.44) 1.37 1.36 - Basic earnings per share 4.27 5.00 -15
($)
(1.22) (0.40) 0.29 Less: Estimated CCS (0.82) 0.60
adjustment per share ($)
0.78 1.77 1.07 -27 Basic CCS earnings per 5.09 4.40 +16
share ($)
0.40 0.40 0.36 +11 Dividend per ordinary share 1.60 1.44 +11
($)
(1) Q4 on Q4 change
Key features of the FOURTH quarter 2008 AND FULL YEAR 2008
Fourth quarter 2008 CCS earnings were $4,785 million, 28% lower than in the same quarter a year ago. Full year 2008 CCS earnings were $31,366 million, 14% higher than in 2007.
Fourth quarter 2008 reported results were a loss of $2,810 million compared to earnings of $8,467 million in the same quarter a year ago, reflecting the impact of downstream net realised inventory effects as a consequence of applying the first-in, first-out (FIFO) inventory accounting method, under IFRS accounting rules. Full year 2008 reported income was $26,277 million, 16% lower than in 2007.
To facilitate a better understanding of the underlying business performance, the financial results are also analysed on an estimated current cost of supplies (CCS) basis as applied for the Downstream segments (see Note 2).
Basic CCS earnings per share decreased by 27% versus the same quarter a year ago. Full year 2008 basic CCS earnings per share increased 16% when compared to 2007.
Total cash returned to shareholders in the form of dividends and share repurchases in the fourth quarter 2008 was $2.7 billion, bringing the total for the full year 2008 to $13.1 billion.
Cash flow from operating activities was $10.3 billion compared to $5.3 billion for the same quarter last year. Full year 2008 cash flow from operating activities was $43.9 billion compared to $34.5 billion in 2007.
Capital investment for the fourth quarter 2008 was $9.2 billion. Net capital investment (capital investment, less divestment proceeds) for the fourth quarter 2008 was $6.8 billion, bringing the total for the full year 2008 to some $32 billion, lower than previously planned, as divestment proceeds for the year exceeded prior expectations. Net capital investment for 2009 is expected to be in the range of $31 to $32 billion, balancing Shell's commitments to projects under construction and growth, with the more challenging economic landscape in 2009.
Return on average capital employed (ROACE), on a reported income basis (see Note 3), was 18.3%.
Gearing was 7.5% at the end of the fourth quarter 2008 versus 7.9% at the end of the fourth quarter 2007. Gearing including certain off-balance sheet obligations was 23.1% at the end of the fourth quarter 2008 versus 16.6% at the end of the fourth quarter 2007 (see Note 5).
- Oil and gas production, including oil sands production, for the fourth quarter 2008 was 3,415 thousand barrels of oil equivalent per day (boe/d), essentially unchanged compared to the same quarter last year (3,436 thousand boe/d). New field start-ups and increased production from existing producing facilities offset natural field declines and the residual impact to production resulting from hurricane-related shut-ins in the USA during the third quarter 2008. Production in the fourth quarter 2008 excluding the impact of divestments, production sharing contracts (PSC) pricing effects, OPEC quota restrictions and hurricanes increased by 2% compared to the same quarter last year.
Full year 2008 oil and gas production, including oil sands production, was 3,248 thousand boe/d, compared to 3,315 thousand boe/d in 2007. Production for the full year 2008 excluding the impact of divestments, production sharing contracts (PSC) pricing effects, OPEC quota restrictions and hurricanes was in line with 2007.
Liquefied Natural Gas (LNG) sales volumes of 3.36 million tonnes were 1% higher than in the same quarter a year ago. Full year 2008 LNG sales were 13.05 million tonnes compared to 13.18 million tonnes in 2007.
Oil Products refinery availability was 90%, compared to 94% in the fourth quarter 2007 (91% for the full year 2008 which is at the same level as in 2007). Chemicals manufacturing plant availability was 93%, unchanged from the fourth quarter 2007 (94% for the full year 2008 versus 93% in 2007). Oil Sands upgrader availability was 87%, 8% higher than in the same quarter last year (93% for the full year 2008 versus 89% in 2007).
Oil Products marketing sales volumes in the fourth quarter 2008 decreased by 6% compared to the same quarter last year. Volumes were impacted by weaker global demand and, excluding the impact of divestments, decreased by 3%. Volumes for the full year 2008 decreased by 2% versus 2007 levels and were unchanged when excluding the impact of divestments. Chemical product sales volumes in the fourth quarter 2008 were impacted by weaker global demand and decreased by 20% compared to the fourth quarter 2007. Volumes for the full year 2008 decreased by 10% versus 2007 levels.
Summary of unaudited results
Quarters $ million Full Year
Q4 Q3 Q4 %(1) 2008 2007 %
2008 2008 2007
3,710 5,501 4,867 Exploration & Production 20,235 14,686
981 2,774 631 Gas & Power 5,328 2,781
(30) 371 82 Oil Sands 941 582
582 2,304 876 Oil Products (CCS basis) 5,155 6,951
(19) 116 348 Chemicals (CCS basis) 156 1,682
(373) (43) (4) Corporate (69) 1,387
(66) (120) (116) Minority interest (380) (505)
4,785 10,903 6,684 -28 CCS earnings 31,366 27,564 +14
(1) Q4 on Q4 change
Summary of identified items
Earnings in the fourth quarter 2008 reflected the following items, which in aggregate amounted to a net gain of $897 million (compared to a net gain of $963 million in the fourth quarter 2007), as summarised in the table below:
Exploration & Production earnings included a net gain of $1,303 million, reflecting gains from divestments of $1,104 million and a gain of $261 million related to the mark-to-market valuation of certain UK gas contracts, which were partly offset by impairment charges of $62 million. Earnings for the fourth quarter 2007 included a net gain of $715 million.
Gas & Power earnings included a charge of $55 million, reflecting an impairment of $44 million and a charge of $11 million related to the mark-to-market valuation of certain gas contracts. Earnings for the fourth quarter 2007 included a charge of $7 million.
Oil Sands earnings for the fourth quarter 2007 included a gain of $94 million.
Oil Products earnings included a net charge of $233 million, reflecting impairment charges of $312 million, which were partly offset by a divestment gain of $79 million. Earnings for the fourth quarter 2007 included a net gain of $177 million.
Chemicals earnings included impairment charges of $22 million. Earnings for the fourth quarter 2007 included a net charge of $46 million.
Corporate earnings included a charge of $96 million related to a provision on receivables. Earnings for the fourth quarter 2007 included a gain of $30 million.
Summary of Identified Items
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
Segment earnings impact of
identified items:
1,303 575 715 Exploration & Production 1,910 1,102
(55) 1,368 (7) Gas & Power 1,302 275
- 25 94 Oil Sands 25 94
(233) 77 177 Oil Products (CCS basis) 25 327
(22) 18 (46) Chemicals (CCS basis) (210) (28)
(96) - 30 Corporate (96) 489
- - - Minority interest - -
897 2,063 963 CCS earnings impact 2,956 2,259
These identified items generally relate to events with an impact of more than $50 million on Royal Dutch Shell's earnings and are shown to provide additional insight into its segment earnings, CCS earnings and income attributable to shareholders. Further additional comments on the business segments are provided in the section 'Earnings by business segment' on page 5 and onwards.
Commodity price effects (see Note 8 - Accounting for Derivatives)
During the fourth quarter 2008 worldwide oil and gas related commodity marker prices declined significantly.
As a consequence, net working capital decreased by some $15 billion during the fourth quarter 2008, mainly due to the lower valued inventory in Oil Products.
As a result of fair value accounting of commodity derivatives associated with long-term contracts, required under International Financial Reporting Standards (IFRS), Gas & Power earnings were increased by non-cash gains of some $150 million.
As required under IFRS, commodity derivatives are recorded at fair value, which is based on market prices, and physical crude oil and oil products inventories are recorded at the lower of historical cost or net realisable value. During the fourth quarter 2008, Oil Products earnings were reduced by non-cash charges of some $150 million.
Earnings by Business Segment
Exploration & Production
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
3,710 5,501 4,867 -24 Segment earnings 20,235 14,686 +38
1,693 1,612 1,798 -6 Crude oil production 1,693 1,818 -7
(thousand b/d)
9,531 7,207 9,185 +4 Natural gas production 8,569 8,214 +4
available for sale (million
scf/d)
3,336 2,854 3,381 -1 Barrels of oil equivalent 3,170 3,234 -2
(thousand boe/d) (2)
(1) Q4 on Q4 change
(2) Excludes oil sands bitumen production
Fourth quarter Exploration & Production segment earnings were $3,710 million compared to $4,867 million a year ago. Earnings included a net gain of $1,303 million related to identified items, compared to a net gain of $715 million in the fourth quarter 2007 (see page 4 for details).
Earnings compared to the fourth quarter 2007 reflected the impact of lower oil prices on revenues, lower production volumes in the USA as a consequence of the third quarter 2008 hurricanes, and higher exploration expenses, which were partly offset by reduced royalty expenses.
Global liquids realisations were 31% lower than in the fourth quarter 2007. Global gas realisations were 13% higher than a year ago. Outside the USA, gas realisations increased by 22% whereas in the USA gas realisations decreased by 14%.
Fourth quarter 2008 production (excluding oil sands bitumen production) was 3,336 thousand barrels of oil equivalent per day (boe/d) compared to 3,381 thousand boe/d a year ago. Crude oil production was down 6% and natural gas production was up 4% compared to the fourth quarter 2007.
Production in the fourth quarter 2008 was supported by new field start-ups since the end of the fourth quarter 2007, which contributed some 80 thousand boe/d of new production to the quarter. New field start-ups include Angel (Shell share 22.3%) and Vincent (Shell share 20.6%) in Australia, E11 Hub Stage 2 (Shell share 50%), M3S (Shell share 70%) and Saderi (Shell share 37.5%) in Malaysia, Starling (Shell share 28%) and Curlew C (Shell share 100%) in the United Kingdom and Sakhalin (Shell share 27.5%), from the Piltun-Astokhskoye B platform, in Russia. In addition, production volumes were supported by continued growth at Stybarrow (Shell share 17.1%) and Geographe & Thylacine (Shell share 17.7%) in Australia, Champion West Phase 3B/C (Shell share 50%) in Brunei, Duvernay (Shell share 100%) in Canada, Changbei (Shell share 50%) in China, Ormen Lange (Shell share 17%) in Norway and West Salym (Shell share 50%) in Russia.
Full year Exploration & Production segment earnings were $20,235 million compared to $14,686 million a year ago. Earnings included a net gain of $1,910 million related to identified items, compared to a net gain of $1,102 million in 2007.
Earnings compared to full year 2007 reflected the benefit of higher oil and gas prices on revenues, which was partly offset by increased exploration expenses, lower production volumes, particularly in the USA mainly as a consequence of hurricane impacts during the third quarter 2008, higher operating costs and royalty expenses.
Global liquids realisations were 36% higher than in 2007. Global gas realisations were 33% higher than a year ago. Outside the USA, gas realisations increased by 36% whereas in the USA gas realisations increased by 33%.
Full year 2008 production (excluding oil sands bitumen production) was 3,170 thousand boe/d compared to 3,234 thousand boe/d a year ago. Crude oil production was down 7% and natural gas production was up 4% compared to 2007.
Production for the full year 2008 was supported by new field start-ups since the end of the fourth quarter 2007, which contributed some 30 thousand boe/d of new production to the full year 2008. New field start-ups include E11 Hub Stage 2 (Shell share 50%) in Malaysia and Starling (Shell share 28%) in the United Kingdom. In addition, production volumes were supported by continued growth at Stybarrow (Shell share 17.1%) in Australia, Champion West Phase 3B/C (Shell share 50%) in Brunei, Duvernay (Shell share 100%) in Canada, Changbei (Shell share 50%) in China, Ormen Lange (Shell share 17%) in Norway, West Salym (Shell share 50%) in Russia and Deimos (Shell share 71.5%) in the USA.
Fourth quarter portfolio developments
In Australia, first gas was delivered from the Angel field (Shell share 22.3%).
In Russia, the Sakhalin II project (Shell share 27.5%) started production from the Piltun-Astokhskoye B platform and began year-round oil exports.
In Nigeria, the AFAM Gas and Power project started up. First gas was supplied to the power plant, with a peak production (Shell share 30%) of approximately 20 thousand boe/d.
Also in Nigeria, Shell completed the divestment of offshore deepwater blocks OML 125 (Abo field) and 134 with total sale proceeds of some $0.6 billion and a production impact of approximately 7 thousand boe/d.
In the United Kingdom, Shell completed the sale of a number of northern North Sea assets. In the Netherlands the sale of assets situated along the NOGAT pipeline was completed. The consolidated production impact is approximately 27 thousand boe/d (Shell share) and total sale proceeds are some $0.9 billion.
Gas & Power
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
981 2,774 631 +55 Segment earnings 5,328 2,781 +92
3.36 3.10 3.34 +1 LNG sales volumes 13.05 13.18 -1
(million tonnes)
(1) Q4 on Q4 change
Fourth quarter Gas & Power segment earnings were $981 million compared to $631 million a year ago. Earnings included a charge of $55 million related to identified items, compared to a net charge of $7 million in the fourth quarter 2007 (see page 4 for details). In addition, fourth quarter 2008 earnings were increased by non-cash gains of approximately $150 million as a result of fair value accounting of commodity derivatives associated with long-term contracts (see Note 8).
Earnings compared to the fourth quarter 2007 reflected the benefit of strong LNG prices on revenues, higher dividends from LNG joint ventures and higher income from LNG cargo diversion opportunities.
LNG sales volumes of 3.36 million tonnes were 1% higher than in the same quarter a year ago. Sales volumes benefited from the start-up of North West Shelf Train 5 in Australia and increased feedgas supply in Malaysia, which were partly offset by the gas supply disruption to Nigeria LNG in December.
Natural gas and power marketing and trading earnings were higher than in the same quarter a year ago, reflecting increased earnings in both North America and Europe.
Full year Gas & Power segment earnings were $5,328 million compared to $2,781 million a year ago. Earnings included a net gain of $1,302 million related to identified items, compared to a net gain of $275 million in 2007.
Earnings compared to the full year 2007 reflected the impact of strong LNG and gas to liquids (GTL) product prices on revenues, higher dividends from LNG joint ventures, higher income from LNG cargo diversion opportunities and higher marketing and trading contributions.
LNG sales volumes of 13.05 million tonnes were 1% lower than in 2007.
Natural gas and power marketing and trading earnings were higher than in 2007, reflecting increased earnings in both North America and Europe.
Fourth quarter portfolio developments
In China, Shell and PetroChina signed a binding Sales and Purchase Agreement for a 20-year supply of up to two million tonnes per annum of LNG from the Gorgon project, conditional upon project approval, in Western Australia.
In the USA, the 100 Megawatt (MW) Mount Storm Phase II wind farm (Shell share 50%) in West Virginia became operational.
In Bolivia, the divestment of Transredes Transporte De Hidrocarburos S.A. (Shell share 25%), a pipeline business, was completed.
Oil Sands
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
(30) 371 82 - Segment earnings 941 582 +62
79 77 55 +44 Bitumen production (thousand 78 81 -3
b/d)
112 97 97 +15 Sales volumes (thousand b/d) 114 125 -9
87 96 79 Upgrader availability (%) 93 89
(1) Q4 on Q4 change
Fourth quarter Oil Sands segment results were a loss of $30 million compared to earnings of $82 million in the same quarter last year. Earnings for the fourth quarter 2007 included a gain of $94 million related to an identified item.
Earnings compared to the fourth quarter 2007 reflected the impact of lower oil prices on revenues and higher operating costs, which were partly offset by higher production volumes and lower royalty expenses.
Bitumen production increased by 44% compared to the same quarter last year, which was impacted by an unplanned shut-down at the Scotford Upgrader. Upgrader availability was 87% compared to 79% in the same quarter last year.
Full year Oil Sands segment earnings were $941 million compared to $582 million in 2007. Earnings included a gain of $25 million related to an identified item, compared to a gain of $94 million in 2007.
Earnings compared to full year 2007 reflected the benefit of higher oil prices on revenues and lower royalty expenses, which were partly offset by lower production volumes and higher operating costs.
Bitumen production decreased by 3% compared to the full year 2007. Upgrader availability was 93% compared to 89% in 2007.
Oil Products
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
(6,416) (44) 2,556 Segment earnings 446 10,439
(6,998) (2,348) 1,680 Less: Estimated CCS (4,709) 3,488
adjustment (see Note 2)
582 2,304 876 -34 Segment CCS earnings 5,155 6,951 -26
3,125 3,273 3,812 -18 Refinery intake (thousand 3,388 3,779 -10
b/d)
6,400 6,403 6,842 -6 Total Oil Products sales 6,568 6,625 -1
(thousand b/d)
90 88 94 Refinery availability (%) 91 91
(1) Q4 on Q4 change
Fourth quarter Oil Products segment results were a loss of $6,416 million, reflecting the result of oil products net realised inventory effects due to declining prices, compared to earnings of $2,556 million for the same period last year.
Fourth quarter Oil Products CCS segment earnings were $582 million compared to $876 million in the fourth quarter 2007. Earnings included a net charge of $233 million related to identified items, compared to a net gain of $177 million in the fourth quarter 2007 (see page 4 for details). In addition, fourth quarter 2008 earnings were reduced by non-cash charges of around $150 million as a result of fair value accounting of commodity derivatives (see Note 8).
CCS earnings compared to the fourth quarter 2007 reflected lower refinery intake volumes and lower total oil products sales volumes as a consequence of reduced worldwide demand, and impairment charges, which were partly offset by higher realised refining margins, higher marketing margins and increased trading contributions. In addition currency exchange rate effects, mainly related to the strengthening of the US dollar against most major currencies, also negatively impacted fourth quarter 2008 earnings.
Industry refining margins compared to the same quarter a year ago were higher in Europe and the Asia-Pacific region and declined in the US Gulf Coast and US West Coast. Refinery availability was 90%, compared to 94% in the fourth quarter of 2007.
Marketing earnings, excluding identified items, compared to the same period a year ago increased due to higher retail, B2B and base oil lubricants margins, which were partly offset by lower sales volumes.
Oil Products (marketing and trading) sales volumes decreased by 6% compared to the same quarter last year. Marketing sales volumes were 6% lower than in the fourth quarter 2007. Excluding the impact of divestments, marketing sales volumes decreased by 3% mainly as a result of reduced global demand.
Full year Oil Products segment earnings were $446 million compared to $10,439 million for the full year 2007. The significant earnings decrease between full year 2008 and 2007 reflects the result of oil products net realised inventory effects due to declining commodity prices in the second half of 2008.
Full year Oil Products CCS segment earnings were $5,155 million compared to $6,951 million in 2007. Earnings included a net gain of $25 million related to identified items, compared to a net gain of $327 million in the full year 2007.
CCS earnings compared to the full year 2007 reflected lower refinery intake volumes and reduced total oil products sales volumes, as a consequence of worldwide demand slow-down and asset sales, lower realised refining margins and higher operating costs which were partly offset by higher marketing margins and increased trading contributions. In addition currency exchange rate effects, mainly related to the strengthening of the US dollar against most major currencies, also negatively impacted the full year 2008 earnings.
Industry refining margins compared to a year ago were higher in Europe and the Asia-Pacific region and declined in the US Gulf Coast and US West Coast. Refinery availability was 91%, at the same levels as in 2007.
Marketing earnings, excluding identified items, compared to 2007 increased due to higher retail, B2B and base oil lubricants margins, which were partly offset by lower sales volumes.
Oil Products (marketing and trading) sales volumes decreased by 1% compared to the full year 2007. Marketing sales volumes were 2% lower than in the full year 2007, and, excluding the impact of divestments, volumes were in line with 2007.
Fourth quarter portfolio developments
In the Dominican Republic, Shell completed the sale of its 50% shareholding in Refineria Dominicana de Petroleo, S.A. (REFIDOMSA), with 34 thousand barrels per day processing capacity, for a total of $110 million.
In Africa, Shell completed the sale of its Downstream businesses in Sudan, Djibouti, Gambia, Ethiopia, and Swaziland.
Chemicals
Quarters $ million Full Year
Q4 Q3 Q4 %(1) 2008 2007 %
2008 2008 2007
(831) (79) 501 Segment earnings (405) 2,051
(812) (195) 153 Less: Estimated CCS (561) 369
adjustment (see Note 2)
(19) 116 348 - Segment CCS earnings 156 1,682 -91
4,483 4,989 5,633 -20 Sales volumes 20,327 22,555 -10
(thousand tonnes)
93 86 93 Manufacturing plant 94 93
availability (%)
(1) Q4 on Q4 change
Fourth quarter Chemicals segment results were a loss of $831 million, reflecting the result of chemicals net realised inventory effects due to declining commodity prices, compared to earnings of $501 million for the same period last year.
Fourth quarter Chemicals CCS segment results were a loss of $19 million compared to earnings of $348 million in the same quarter last year. Earnings included a charge of $22 million related to identified items, compared to a net charge of $46 million in the fourth quarter 2007 (see page 4 for details).
CCS earnings compared to the fourth quarter 2007 reflected lower sales volumes, lower income from equity-accounted investments and higher operating costs, which were partly offset by higher realised margins and higher trading contributions.
Sales volumes decreased by 20% compared to the fourth quarter 2007, mainly as a result of reduced global demand.
Chemicals manufacturing plant availability was 93%, unchanged from the fourth quarter 2007. The reduced global demand for chemicals products has significantly impacted the chemicals manufacturing plant utilisation rate, which dropped to 67 % from 86 % in the fourth quarter 2007.
Full year Chemicals segment results were a loss of $405 million, reflecting the result of chemicals net realised inventory effects due to declining commodity prices in the second half of 2008, compared to earnings of $2,051 million in 2007.
Full year Chemicals CCS segment earnings were $156 million compared to $1,682 million in 2007. Earnings included a net charge of $210 million related to identified items, compared to a net charge of $28 million in 2007.
CCS earnings compared to full year 2007 reflected lower income from equity-accounted investments, lower realised margins, reduced sales volumes and higher operating costs.
Sales volumes decreased by 10% compared to full year 2007, mainly as a result of reduced global demand.
Chemicals manufacturing plant availability was 94%, some 1% higher than
in 2007.
Corporate
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
(373) (43) (4) Segment earnings (69) 1,387
Fourth quarter Corporate segment results were a loss of $373 million compared to a loss of $4 million for the same period last year. Earnings included a charge of $96 million related to identified items, compared to a gain of $30 million in the fourth quarter 2007 (see page 4 for details). Currency exchange losses in the fourth quarter 2008 were $351 million compared to gains of $ 82 million in the fourth quarter 2007.
Earnings compared to the fourth quarter 2007 reflected currency exchange rate impacts, lower net interest income and reduced net underwriting results, which were partly offset by lower shareholder costs.
Full year Corporate segment results were a loss of $69 million compared to earnings of $1,387 million for the same period last year. Earnings included a charge of $96 million related to identified items, compared to a gain of $489 million for the full year 2007.
Earnings compared to full year 2007 reflected currency exchange rate impacts, lower net underwriting results mainly as a consequence of hurricane impacts in the USA during the third quarter 2008, and reduced net interest income, which were partly offset by lower shareholder costs.
Price and Margin Information
Oil & Gas
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
$/bbl Realised oil prices - $/bbl
Exploration & Production (period
average)
58.40 110.08 82.11 World outside USA 92.39 68.24
52.32 119.25 88.92 USA 95.01 66.49
57.60 111.18 82.96 Global 92.75 67.99
$/bbl Realised oil prices - Oil Sands $/bbl
(period average)
47.26 113.90 71.45 Canada 88.98 61.97
$/thousand scf Realised gas prices (period $/thousand scf
average)
10.58 8.89 8.15 Europe 9.46 7.24
5.91 5.64 World outside USA (including 6.25 4.61
6.89 Europe)
6.37 10.82 7.45 USA 9.61 7.23
6.80 6.77 6.00 Global 6.85 5.14
Oil and gas marker industry
prices (period average)
55.48 115.15 88.35 Brent ($/bbl) 97.14 72.45
59.13 118.07 90.47 WTI ($/bbl) 99.72 72.16
52.83 117.88 89.00 Edmonton Par ($/bbl) 98.45 72.13
6.38 9.11 6.93 Henry Hub ($/MMBtu) 8.85 6.94
57.03 61.75 46.86 UK National Balancing Point 58.06 30.01
(pence/therm)
88.11 129.15 82.80 Japanese Crude Cocktail - JCC 106.71 72.83
($/bbl)(1)
Refining & Cracker Industry Margins(2)
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
$/bbl Refining marker industry gross $/bbl
margins
(period average)
8.60 8.25 10.60 ANS US West Coast coking margin 9.40 15.95
4.10 12.30 9.65 WTS US Gulf Coast coking margin 8.95 16.30
5.55 6.00 4.35 Rotterdam Brent complex 5.25 4.45
4.45 1.85 1.95 Singapore 80/20 Arab light/Tapis 3.00 2.80
complex
$/tonne Cracker industry margins (period $/tonne
average)
547.00 460.00 334.00 US ethane 445.00 334.00
1,357.00 648.00 279.00 Western Europe naphtha 675.00 424.00
(30.00) 65.00 (17.00) North East Asia naphtha 17.00 216.00
(1) JCC prices for the fourth quarter and full year 2008 are based on
available market data up to the end of October 2008. Prices for
these periods will be updated when full market data are available.
(2) The refining and cracker industry margins shown above do not
represent actual Shell realised margins for the periods. These are
estimated industry margins based on available market information at
the end of the quarter.
Oil & Gas - Operational Data
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
thousand b/d Crude oil production thousand b/d
361 335 395 Europe 375 423
293 305 352 Africa 309 332
218 200 227 Asia Pacific 206 227
480 459 438 Middle East, Russia, CIS 450 433
264 231 310 USA 272 324
77 82 76 Other Western Hemisphere 81 79
1,693 1,612 1,798 -6 Total crude oil 1,693 1,818 -7
production excluding oil
sands
79 77 55 Bitumen production - oil 78 81
sands
1,772 1,689 1,853 -4 Total crude oil 1,771 1,899 -7
production including oil
sands
Natural gas production million
million scf/d(2) available for sale scf/d(2)
4,450 2,446 4,569 Europe 3,679 3,350
448 591 594 Africa 552 584
2,718 2,508 2,166 Asia Pacific 2,544 2,405
257 229 239 Middle East, Russia, CIS 237 250
1,071 942 1,138 USA 1,053 1,130
587 491 479 Other Western Hemisphere 504 495
9,531 7,207 9,185 +4 8,569 8,214 +4
Total production in
thousand boe/d(3) barrels of oil equivalent thousand boe/d(3)
1,128 757 1,183 Europe 1,009 1,001
370 407 454 Africa 404 433
687 631 600 Asia Pacific 645 641
524 499 479 Middle East, Russia, CIS 491 476
449 393 506 USA 453 519
178 167 159 Other Western Hemisphere 168 164
3,336 2,854 3,381 -1 Total production 3,170 3,234 -2
excluding oil sands
79 77 55 Bitumen production - oil 78 81
sands
3,415 2,931 3,436 -1 Total production 3,248 3,315 -2
including oil sands
(1) Q4 on Q4 change.
(2) scf/d = standard cubic feet per day; 1 standard cubic foot =
0.0283 cubic metre.
(3) Natural gas converted to oil equivalent at 5.8 million scf/d =
thousand boe/d.
Oil Products and Chemicals - Operational Data
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
Refinery processing
thousand b/d intake thousand b/d
1,227 1,462 1,803 Europe 1,481 1,731
746 674 821 Other Eastern Hemisphere 729 811
808 777 869 USA 826 879
344 360 319 Other Western Hemisphere 352 358
3,125 3,273 3,812 -18 3,388 3,779 -10
Oil sales
2,025 2,028 2,051 Gasolines 2,051 2,178
728 810 802 Kerosenes 792 756
2,225 2,231 2,429 Gas/diesel oils 2,254 2,295
732 623 769 Fuel oil 742 704
690 711 791 Other products 729 692
6,400 6,403 6,842 -6 Total oil products * 6,568 6,625 -1
*Comprising:
1,791 1,795 1,983 Europe 1,831 1,886
1,245 1,262 1,369 Other Eastern Hemisphere 1,257 1,283
1,409 1,366 1,485 USA 1,402 1,487
698 718 678 Other Western Hemisphere 719 672
1,257 1,262 1,327 Export sales 1,359 1,297
Chemical sales volumes by
thousand tonnes main product category thousand tonnes
(2)**
2,584 2,809 3,164 Base chemicals 11,573 12,968
1,897 2,178 2,467 First line derivatives 8,746 9,577
2 2 2 Other 8 10
4,483 4,989 5,633 -20 20,327 22,555 -10
**Comprising:
1,882 2,112 2,190 Europe 8,472 8,908
1,179 1,223 1,457 Other Eastern Hemisphere 4,924 5,466
1,306 1,512 1,802 USA 6,362 7,469
116 142 184 Other Western Hemisphere 569 712
(1) Q4 on Q4 change.
(2) Excluding volumes sold by equity-accounted investments, chemical
feedstock trading and by-products.
Note
All amounts shown throughout this Report are unaudited.
In this announcement, excluding in the financial report and tables, we have aggregated our equity position in projects for both direct and indirect interest (for example, we have aggregated our indirect interest in North West Shelf LNG and the Pluto project via our 34% shareholding in Woodside Energy Ltd).
First quarter results for 2009 are expected to be announced on April 29, 2009, second quarter results are expected to be announced on July 30, 2009 and third quarter results are expected to be announced on October 29, 2009. There will be a Shell strategy update on March 17, 2009.
In this document "Shell", "Shell group" and "Royal Dutch Shell" are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words "we", "us" and "our" are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. "Subsidiaries", "Shell subsidiaries" and "Shell companies" as used in this document refer to companies in which Royal Dutch Shell plc either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as "associated companies" or "associates" and companies in which Shell has joint control are referred to as "jointly controlled entities". In this document, associates and jointly controlled entities are also referred to as "equity-accounted investments".
This document contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "objectives", "outlook", "probably", "project", "will", "seek", "target", "risks", "goals", "should" and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this document, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell's products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this document, January 29, 2009. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this document.
Please refer to the Annual Report and Form 20-F for the year ended December 31, 2007 for a description of certain important factors, risks and uncertainties that may affect Shell's businesses.
Cautionary Note to US Investors:
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We may use certain terms in this announcement that the SEC's guidelines strictly prohibit us from including in filings with the SEC. US Investors are urged to consider closely the disclosure in our Form 20-F, File No 001-32575 and disclosure in our Forms 6-K, File No 001-32575, available on the SEC's website http://www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.
January 29, 2009
Appendix: Royal Dutch Shell financial report and tables
Statement of Income (See Note 1)
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
81,073 131,567 106,703 Revenue(2) 458,361 355,782
76,349 113,249 90,603 Cost of sales 395,639 296,697
4,724 18,318 16,100 -71 Gross profit 62,722 59,085 +6
4,476 4,139 4,880 Selling, distribution and 17,028 16,621
administrative expenses
778 538 382 Exploration 2,049 1,712
350 2,000 2,376 Share of profit of 7,446 8,234
equity-accounted
investments
290 174 (174) Net finance costs and 271 (1,590)
other (income)/expense
(470) 15,467 13,388 - Income before taxation 50,820 50,576 -
2,489 6,987 4,755 Taxation 24,344 18,650
(2,959) 8,480 8,633 - Income for the period 26,476 31,926 -17
(149) 32 166 Income attributable to 199 595
minority interest
(2,810) 8,448 8,467 - Income attributable to 26,277 31,331 -16
shareholders of Royal
Dutch Shell plc
(1) Q4 on Q4 change.
(2) Revenue is stated after deducting sales taxes, excise duties and
similar levies of $20,413 million in Q4 2008, $25,323 million in Q3
2008, $25,462 million in Q2 2008, $22,920 million in Q1 2008,
$21,552 million in Q4 2007, $20,830 million in Q3 2007, $18,993
million in Q2 2007 and $17,305 million in Q1 2007.
Basic Earnings Per Share (See Notes 1, 2 and 7)
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
(0.44) 1.37 1.36 Earnings per share ($) 4.27 5.00
0.78 1.77 1.07 CCS earnings per share ($) 5.09 4.40
Diluted Earnings Per Share (See Notes 1, 2 and 7)
Quarters Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
(0.44) 1.37 1.36 Earnings per share ($) 4.26 4.99
0.78 1.77 1.07 CCS earnings per share ($) 5.08 4.39
Earnings by Business Segment (See Notes 2 and 4)
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 %(1) 2008 2007 %
Exploration & Production:
3,477 3,885 3,763 -8 - World outside USA 14,854 10,954 +36
233 1,616 1,104 -79 - USA 5,381 3,732 +44
3,710 5,501 4,867 -24 20,235 14,686 +38
Gas & Power:
956 2,437 639 +50 - World outside USA 5,114 2,315 +121
25 337 (8) - - USA 214 466 -54
981 2,774 631 +55 5,328 2,781 +92
(30) 371 82 - Oil Sands 941 582 +62
Oil Products (CCS basis):
1,375 2,307 789 +74 - World outside USA 5,425 5,090 +7
(793) (3) 87 - - USA (270) 1,861 -
582 2,304 876 -34 5,155 6,951 -26
Chemicals (CCS basis):
115 253 370 -69 - World outside USA 784 1,661 -53
(134) (137) (22) - - USA (628) 21 -
(19) 116 348 - 156 1,682 -91
5,224 11,066 6,804 -23 Total operating segments 31,815 26,682 +19
Corporate:
(41) 178 12 - Interest and investment 328 875
income/(expense)
(351) (264) 82 - Currency exchange (650) 205
gains/(losses)
19 43 (98) - Other - including 253 307
taxation
(373) (43) (4) (69) 1,387
(66) (120) (116) Minority interest (380) (505)
4,785 10,903 6,684 -28 CCS earnings 31,366 27,564 +14
(7,595) (2,455) 1,783 Estimated CCS adjustment (5,089) 3,767
for Oil Products and
Chemicals
(2,810) 8,448 8,467 - Income attributable to 26,277 31,331 -16
shareholders of Royal
Dutch Shell plc
(1) Q4 on Q4 change
Summarised Balance Sheet (See Notes 1 and 6)
$ million
Dec 31, 2008 Sept 30, 2008 Dec 31, 2007
Assets
Non-current assets:
Intangible assets 5,021 5,541 5,366
Property, plant and equipment 112,038 114,193 101,521
Investments:
- equity-accounted investments 28,327 31,630 29,153
- financial assets 4,065 2,952 3,461
Deferred tax 3,418 3,978 3,253
Pre-paid pension costs 6,198 6,205 5,559
Other 6,764 6,219 5,760
165,831 1 70,718 154,073
Current assets:
Inventories 19,342 33,442 31,503
Accounts receivable 82,040 90,100 74,238
Cash and cash equivalents 15,188 7,821 9,656
116,570 131,363 115,397
Total assets 282,401 302,081 269,470
Liabilities
Non-current liabilities:
Debt 13,772 10,742 12,363
Deferred tax 12,518 14,688 13,039
Retirement benefit obligations 5,469 5,961 6,165
Other provisions 12,570 13,499 13,658
Other 3,677 4,088 3,893
48,006 48,978 49,118
Current liabilities:
Debt 9,497 5,984 5,736
Accounts payable and accrued 85,091 88,387 75,697
liabilities
Taxes payable 8,107 15,632 9,733
Retirement benefit obligations 383 369 426
Other provisions 2,451 2,356 2,792
105,529 112,728 94,384
Total liabilities 153,535 161,706 143,502
Equity attributable to shareholders 127,285 138,469 123,960
of Royal Dutch Shell plc
Minority interest 1,581 1,906 2,008
Total equity 128,866 140,375 125,968
Total liabilities and equity 282,401 302,081 269,470
Summarised Statement of Cash Flows (See Note 1)
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
Cash flow from operating
activities:
(2,959) 8,480 8,633 Income for the period 26,476 31,926
Adjustment for:
2,411 6,935 5,551 - Current taxation 24,452 20,076
414 178 96 - Interest (income)/expense 1,039 550
3,684 3,387 3,840 - Depreciation, depletion and 13,656 13,180
amortisation
(1,234) (1,799) (1,799) - (Profit)/loss on sale of (4,071) (3,349)
assets
14,687 2,215 (3,375) - Decrease/(increase) in net 7,935 (6,206)
working capital
(350) (2,000) (2,376) - Share of profit of (7,446) (8,234)
equity-accounted investments
2,522 2,604 2,282 - Dividends received from 9,325 6,955
equity-accounted
investments
(1,105) (95) (726) - Deferred taxation and other (1,030) (773)
provisions
(35) (618) (24) - Other (549) (801)
18,035 19,287 12,102 Cash flow from operating 69,787 53,324
activities (pre-tax)
(7,748) (6,686) (6,809) Taxation paid (25,869) (18,863)
10,287 12,601 5,293 Cash flow from operating 43,918 34,461
activities
Cash flow from investing
activities:
(7,892)(12,392) (8,013) Capital expenditure (35,065) (24,576)
(193) (555) (519) Investments in (1,885) (1,852)
equity-accounted investments
1,179 1,087 1,742 Proceeds from sale of assets 4,737 8,566
569 1,160 561 Proceeds from sale of 2,062 1,012
equity-accounted investments
(36) (25) (120) Proceeds from sale of 224 1,055
/(additions to) financial
assets
191 267 353 Interest received 1,012 1,225
(6,182)(10,458) (5,996) Cash flow from investing (28,915) (14,570)
activities
Cash flow from financing
activities:
3,970 215 317 Net increase/(decrease) in 4,161 (455)
debt with maturity period
within three months
3,001 238 195 Other debt: New borrowings 3,555 4,565
(581) (166) (182) Repayments (2,890) (2,796)
(409) (295) (312) Interest paid (1,371) (1,235)
31 (18) (52) Change in minority interest 40 (6,757)
(302) (848) (1,538) Repurchases of shares (3,573) (4,387)
Dividends paid to:
(2,408) (2,290) (2,318) - Shareholders of Royal Dutch (9,516) (9,001)
Shell plc
(54) (105) (17) - Minority interest (325) (203)
Treasury shares:
47 36 124 - Net sales/(purchases) and 525 876
dividends received
3,295 (3,233) (3,783) Cash flow from financing (9,394) (19,393)
activities
(33) (79) 50 Currency translation (77) 156
differences relating to cash
and cash equivalents
7,367 (1,169) (4,436) Increase/(decrease) in cash 5,532 654
and cash equivalents
7,821 8,990 14,092 Cash and cash equivalents at 9,656 9,002
beginning of period
15,188 7,821 9,656 Cash and cash equivalents at 15,188 9,656
end of period
Capital investment
Quarters $ million Full Year
Q4 Q3 Q4 2008 2007
2008 2008 2007
Capital expenditure:
Exploration & Production:
3,510 8,083 2,704 - World outside USA 16,833 10,320
965 688 1,321 - USA 5,099 3,403
4,475 8,771 4,025 21,932 13,723
Gas & Power:
1,033 1,030 862 - World outside USA 3,892 2,936
2 4 11 - USA 10 15
1,035 1,034 873 3,902 2,951
817 835 649 Oil Sands 3,124 1,931
Oil Products:
1,252 879 1,257 - World outside USA 3,449 3,141
158 92 123 - USA 379 530
1,410 971 1,380 3,828 3,671
Chemicals:
567 558 419 - World outside USA 1,898 1,068
70 49 103 - USA 187 347
637 607 522 2,085 1,415
98 23 193 Corporate 241 414
8,472 12,241 7,642 Total capital expenditure 35,112 24,105
Exploration expense
336 260 193 - World outside USA 949 646
153 179 170 - USA 498 469
489 439 363 1,447 1,115
New equity in equity-accounted
investments
135 361 237 - World outside USA 1,208 1,407
19 21 40 - USA 86 65
154 382 277 1,294 1,472
39 173 242 New loans to equity-accounted 591 380
investments
9,154 13,235 8,524 Total capital investment* 38,444 27,072
*Comprising:
5,040 9,618 4,630 - Exploration & Production 24,718 15,919
1,096 1,169 1,091 - Gas & Power 4,346 3,532
817 835 649 - Oil Sands 3,124 1,931
1,464 983 1,438 - Oil Products 3,917 3,856
639 607 523 - Chemicals 2,097 1,419
98 23 193 - Corporate 242 415
9,154 13,235 8,524 38,444 27,072
Additional segmental information(1)
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
Exploration & Production
3,710 5,501 4,867 Segment earnings 20,235 14,686
Including:
778 538 382 - Exploration 2,049 1,712
2,368 2,168 2,848 - Depreciation, depletion & 8,929 9,338
amortisation
1,297 1,358 1,278 - Share of profit of 4,970 3,583
equity-accounted investments
3,105 9,556 5,135 Cash flow from operations 31,649 24,348
397 1,444 830 Less: Net working capital 2,390 1,238
movements(2)
2,708 8,112 4,305 Cash flow from operations 29,259 23,110
excluding net working capital
movements
55,274 53,276 47,682 Capital employed 55,274 47,682
Gas & Power
981 2,774 631 Segment earnings 5,328 2,781
Including:
80 151 85 - Depreciation, depletion & 397 315
amortisation
550 787 533 - Share of profit of 2,541 1,852
equity-accounted investments
1,120 2,259 295 Cash flow from operations 5,445 1,408
(1) 718 (379) Less: Net working capital 774 (514)
movements(2)
1,121 1,541 674 Cash flow from operations 4,671 1,922
excluding net working capital
movements
22,497 21,094 19,383 Capital employed 22,497 19,383
Oil Sands
(30) 371 82 Segment earnings 941 582
Including:
40 44 42 - Depreciation, depletion & 173 166
amortisation
(37) 684 208 Cash flow from operations 1,590 1,520
(34) 130 145 Less: Net working capital 60 720
movements(2)
(3) 554 63 Cash flow from operations 1,530 800
excluding net working capital
movements
6,200 6,249 4,603 Capital employed 6,200 4,603
(1) Corporate segment information has not been included in the table
shown. Please refer to the Earnings by business segment section for
additional information. The above data does not consider minority
interest impacts on the segments.
(2) Excluding working capital movements related to taxation.
Additional segmental information(1) (continued)
Quarters $ million Full Year
Q4 2008 Q3 2008 Q4 2007 2008 2007
Oil Products
582 2,304 876 Segment CCS earnings 5,155 6,951
Including:
855 614 607 - Depreciation, depletion & 2,686 2,440
amortisation
(239) 129 328 - Share of profit of 598 1,723
equity-accounted investments
6,521 2,068 (1,605) Cash flow from operations 6,803 3,682
13,783 1,537 (3,929) Less: Net working capital 5,446 (6,834)
movements(2)
(7,262) 531 2,324 Cash flow from operations 1,357 10,516
excluding net working capital
movements
44,171 58,520 54,515 Capital employed 44,171 54,515
Chemicals
(19) 116 348 Segment CCS earnings 156 1,682
Including:
155 215 207 - Depreciation, depletion & 888 666
amortisation
(99) 96 165 - Share of profit of 247 694
equity-accounted investments
890 164 688 Cash flow from operations 1,801 1,873
1,439 207 (123) Less: Net working capital 1,421 (796)
movements(2)
(549) (43) 811 Cash flow from operations 380 2,669
excluding net working capital
movements
9,904 11,206 10,571 Capital employed 9,904 10,571
(1) Corporate segment information has not been included in the table
shown. Please refer to the Earnings by business segment section for
additional information. The above data does not consider minority
interest impacts on the segments.
(2) Excluding working capital movements related to taxation.
Notes
1. Accounting policies and basis of presentation
The quarterly financial report and tables are prepared in accordance with International Financial Reporting Standards (IFRS) and are also in accordance with IFRS as adopted by the European Union.
The accounting policies are unchanged from those set out in Note 2 to the Consolidated Financial Statements of Royal Dutch Shell plc in the Annual Report and Form 20-F for the year ended December 31, 2007 on pages 117 to 121.
2. Earnings on an estimated current cost of supplies (CCS) basis
To facilitate a better understanding of underlying business performance, the financial results are also analysed on an estimated current cost of supplies (CCS) basis as applied for the Oil Products and Chemicals segment earnings. Earnings on an estimated current cost of supplies basis provides useful information concerning the effect of changes in the cost of supplies on Royal Dutch Shell's results of operations and is a measure to manage the performance of the Oil Products and Chemicals segments but is not a measure of financial performance under IFRS.
On this basis, Oil Products and Chemicals segment cost of sales of the volumes sold during the period is based on the cost of supplies during the same period after making allowance for the estimated tax effect, instead of the first-in, first-out (FIFO) method of inventory accounting. Earnings calculated on this basis do not represent an application of the last-in, first-out (LIFO) inventory basis and do not reflect any inventory drawdown effects.
3. Return on average capital employed (ROACE)
ROACE is defined as the sum of the current and previous three quarters' income adjusted for interest expense, after tax, divided by the average capital employed for the period.
Components of the calculation are:
$ million Q4 2008 Q4 2007
Income (four quarters) 26,476 31,926
Interest expense after tax 615 699
ROACE numerator 27,091 32,625
Capital employed - opening 144,067 130,718
Capital employed - closing 152,135 144,067
Capital employed - average 148,101 137,393
ROACE 18.3% 23.7%
4. Earnings by business segment
Operating segment results are presented before deduction of minority interest and also exclude interest and other income of a non-operational nature, interest expense, non-trading currency exchange effects and tax on these items, which are included in the Corporate results. Operating segment results are after tax and include equity-accounted investments.
5. Gearing
The numerator and denominator in the gearing calculation, as demonstrated below, used by Shell are calculated by adding to reported debt and equity certain off-balance sheet obligations as at the beginning of the year such as operating lease commitments and underfunded retirement benefits obligations (if applicable) which Shell believes to be in the nature of incremental debt, and deducting cash and cash equivalents judged to be in excess of amounts required for operational purposes.
$ million Dec 31, 2008 Dec 31, 2007
Non-current debt 13,772 12,363
Current debt 9,497 5,736
Total debt 23,269 18,099
Add: Net present value of operating lease 16,445 14,387
obligations
Underfunded retirement benefit obligations 11,834 -
(after tax)
Less: Cash and cash equivalents in excess of 12,888 7,356
operational requirements
Adjusted debt 38,660 25,130
Total equity 128,866 125,968
Total capital 167,526 151,098
Gearing ratio (adjusted debt as a percentage of 23.1% 16.6%
total capital)
6. Equity
Total equity comprises equity attributable to shareholders of Royal Dutch Shell and to the minority interest. Other reserves comprise the capital redemption reserve, share premium reserve, merger reserve, share plan reserve, currency translation differences, unrealised gains/(losses) on securities and unrealised gains/(losses) on cash flow hedges.
$ million Ordinary Treasury Other Retained Total Minority Total
share shares reserves earnings interest equity
capital
At December 31, 536 (2,392) 14,148 111,668 123,960 2,008 125,968
2007
Income for the - - - 26,277 26,277 199 26,476
period
Income/(expense) - - (11,049) - (11,049) (341)(11,390)
recognised
directly in
equity
Capital - - - 58 58 40 98
contributions/
(repayments)
from/to minority
shareholders and
other changes in
minority interest
Dividends paid - - - (9,516) (9,516) (325) (9,841)
Treasury shares: - 525 - - 525 - 525
net
sales/(purchases)
and dividends
received
Repurchases of (9) - 9 (3,082) (3,082) - (3,082)
shares
Share-based - - 70 42 112 - 112
compensation
At December 31, 527 (1,867) 3,178 125,447 127,285 1,581 128,866
2008
$ million Ordinary Treasury Other Retained Total Minority Total
share shares reserves earnings interest equity
capital
At December 31, 545 (3,316) 8,820 99,677 105,726 9,219 114,945
2006
Income for the - - - 31,331 31,331 595 31,926
period
Income/(expense) - - 4,933 - 4,933 27 4,960
recognised
directly in
equity
Capital - - - - - 748 748
contributions/
(repayments)
from/to minority
shareholders
Acquisition of - - - (5,445) (5,445) (1,639) (7,084)
Shell Canada
Sakhalin partial - - - - - (6,711) (6,711)
divestment
Other changes in - - - (28) (28) (28) (56)
minority interest
Dividends paid - - - (9,001) (9,001) (203) (9,204)
Treasury shares: - 924 - - 924 - 924
net
sales/(purchases)
and dividends
received
Repurchases of (9) - 9 (4,866) (4,866) - (4,866)
shares
Share-based - - 386 - 386 - 386
compensation
At December 31, 536 (2,392) 14,148 111,668 123,960 2,008 125,968
2007
7. Basis for Royal Dutch Shell earnings per ordinary share
The total number of Royal Dutch Shell ordinary shares in issue at the end of the period was 6,241.5 million. Royal Dutch Shell reports earnings per share on a basic and on a diluted basis, based on the weighted average number of Royal Dutch Shell (combined A and B) ordinary shares outstanding. Shares held in respect of share options and other incentive compensation plans are excluded in determining basic earnings per share.
Basic earnings per share calculations are based on the following weighted
average number of shares:
Millions Q4 2008 Q3 2008 Q4 2007 Full Year Full Year
2008 2007
Royal Dutch Shell ordinary 6,123.8 6,147.3 6,225.3 6,159.1 6,263.8
shares of EUR0.07 each
Diluted earnings per share calculations are based on the following weighted average number of shares. This adjusts the basic number of shares for all share options currently "in-the-money".
Millions Q4 2008 Q3 2008 Q4 2007 Full Year Full Year
2008 2007
Royal Dutch Shell ordinary
shares of EUR0.07 each 6,127.5 6,159.8 6,248.8 6,171.5 6,283.8
Basic shares outstanding at the end of the following periods are:
Millions Q4 2008 Q3 2008 Q4 2007
Royal Dutch Shell ordinary
shares of EUR0.07 each 6,121.7 6,133.4 6,210.4
One American Depository Receipt (ADR) is equal to two Royal Dutch Shell ordinary shares.
8. Accounting for Derivatives
IFRS require that derivative instruments be recognised in the financial statements at fair value. Any change in the current period between the period end market price and the contract settlement price is recognised in income where hedge accounting is either not permitted or not applied to these contracts.
The physical crude oil and related products held by the Oil Products business as inventory are recorded at historical cost or net realisable value, whichever is lower, as required under IFRS. Consequently, any increase in value of the inventory over cost is not recognised in income until the sale of the commodity occurs in subsequent periods.
In the Oil Products business, the buying and selling of commodities includes transactions conducted through the forward markets using commodity derivatives to reduce economic exposure. The derivatives are typically associated with a future physical delivery of the commodities.
These differences in accounting treatment for physical inventory (at cost or net realisable value, whichever is lower) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between reporting periods.
Similarly, earnings from long-term contracts held by Gas & Power are recognised in income upon realisation. Associated commodity derivatives are recognised at fair value as of the end of each quarter.
These differences in accounting treatment for long-term contracts (on an accrual basis) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between reporting periods.
