First impression of Royal Dutch Shell's 1Q
Another quarter of challenges from lower oil and gas prices and weakened refined product demand, but improvements at the oil product unit
Earnings from the exploration and production unit were $1.7 billion, down from $5.1 billion a year ago and $3.7 billion in the fourth quarter. Aside from lower oil and gas prices, factors behind the segment earnings decline included a 7% drop in oil production caused by OPEC production cuts, disruptions in Nigeria, earlier divestments, and production-sharing contract effects. Removing these factors, underlying production was actually slightly higher than a year ago thanks to new field startups, notably the startup of gas production from the Sakhalin II project in Russia. Shell acquired or signed agreements to develop new fields in the United States, Guyana, and Abu Dhabi.
At the gas and power unit, earnings of $514 million were down significantly from $948 million earned a year ago, in part because of 13% lower liquefied natural gas (LNG) sales volume. The startup of Train 5 at the North West Shelf project and Sakhalin II LNG production could not offset the impact of lower LNG volume from Nigeria. We look for more LNG production from Sakhalin when the facilities reach full production.
The oil product unit showed some sequential improvement, with adjusted first-quarter earnings of $1.4 billion up from $582 million in the 2008 fourth quarter. Improving refining market indicators in the US offset continuing margin pressure in Europe and Asia and lower refined product sales in all regions.
Catharina Milostan is a stock analyst with Morningstar.com.