Shell Profit Rises on Liquefied Natural Gas Income, Shares Climb

Royal Dutch Shell Plc (RDSA)’s third-quarter profit expanded 2.3 percent after Europe’s biggest oil company generated increased earnings from liquefied natural gas. Its shares rose the most since April in London trading.

Net income rose to $7.14 billion from $6.98 billion a year earlier, Shell said today in a statement. Excluding one-time items and inventory changes, profit was $6.6 billion, beating the $6.3 billion average estimate of 13 analysts surveyed by Bloomberg.

Earnings “benefited from the increased contribution from integrated gas, which included an additional dividend from an LNG venture,” said Shell, based in The Hague. LNG sales gained 4 percent to 4.97 million metric tons from a year ago, mainly reflecting the contribution from the Pluto project in Australia.

Shell, which expects for the first time to pump more gas than crude this year, is expanding LNG projects on rising demand from Asia. It’s the world’s largest supplier of the fuel and has interests in about a quarter of the LNG ships in operation.

The company’s shares advanced 2.5 percent to 2,177 pence in London trading, the biggest gain since April 26.

“Although production volumes were relatively flat, the company again demonstrated very strong cash flow generation in spite of headwinds with U.S. gas prices,” said Richard Griffith, an analyst at Oriel Securities Ltd. in London.

Gas to Liquids

Third-quarter production fell about 1 percent to 2.982 million barrels of oil equivalent a day from a year ago partly because of works at fields in the North Sea, including the Shearwater platform, and shutdowns in the Gulf of Mexico because of Tropical Storm Isaac. Liquids production dropped 5 percent, while gas pumping was up 4 percent in the period.

The Pearl gas-to-liquids plant in Qatar has been running at more than 85 percent of capacity in recent days, Chief Financial Officer Simon Henry said. “We are very much on track to finish ramping up towards full capacity in the fourth quarter.” Full- scale operation at the $19 billion plant, the biggest in the world, was delayed from July because of maintenance.

Chief Executive Officer Peter Voser in February forecast 50 percent higher operational cash flow through 2015 on new projects. The Anglo-Dutch company, which scaled back shale-gas drilling in the U.S. to focus on oil, agreed in September to pay $1.9 billion to Chesapeake Energy Corp. (CHK) for liquids-rich acreage in Texas.

“We have announced around $6 billion of acquisitions and new acreage and also around $6 billion of asset sales in 2012, which will better position Shell for growth,” Voser said in today’s statement.

U.S. Gas

In North America the company ran 29 rigs drilling liquid- rich shale at the end of September, from six units a year ago, the CFO said. Shell more than halved dry-gas drilling to 11 rigs, and focused mostly on Pennsylvania’s Marcellus Shale as well as western Canada. This year, “we’ve invested some $700 million less than originally intended on gas,” Henry said.

Shell expects to pump about 50,000 barrels a day of oil equivalent from liquid-rich shale including Eagle Ford, Texas, by the year-end, Henry said in comments posted on the company website.

U.S. gas prices sank 29 percent in the third quarter from a year earlier as slowing global economic growth reduced energy consumption. Benchmark Brent crude futures fell 2.4 percent.

“We’ve seen prices touch $2” per million British thermal units in 2012 “whereas we don’t see any really of the shale gas plays as being economic at anything below $3 and most of them need $4 to $5,” Henry said. Shell plans projects on $4 to $6 per million Btu and sees $8 as “an upper limit” as buyers will switch to fuels such as coal for power generation, he said.

Net Charge

The earnings include a net charge of $298 million, “mainly related to onshore gas properties in North America.” BP and BG Group Plc (BG/) wrote down the value of some U.S. shale assets when reporting second-quarter results.

“Impairments were more limited than some could have feared,” said Dominique Patry, an analyst at Credit Agricole Cheuvreux SA. “Given competitors’ massive writedown in the second quarter, some were fearing that Shell would have to carry the same exercise.”

Shell spent about $600 million on new exploration license acquisitions in the quarter, including in Benin deepwater, the Gulf of Mexico and onshore North America. New acreage was also added off Australia, China, Malaysia and Ukraine, it said.

In Iraq, Shell delayed an expansion of output at the Majnoon oilfield until next year. Its partners, including Petroliam Nasional Bhd of Malaysia, plan to boost extraction to 175,000 barrels of oil a day, its first commercial rate.

The field is expected to pump about 70,000 barrels a day at the end of the year, Thamir Ghadhban, a senior adviser to Iraqi Prime Minister Nouri al-Maliki, said last month.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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