Upstream, chemicals drive 14% increase in Shell’s Q4 net income

Shell’s Ormen Lange gas field in Norway. Source: Shell

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LONDON (ICIS)–Shell’s fourth-quarter group net income excluding identified items rose 14% year on year to $1.8bn as upstream and chemicals earnings helped to offset a weaker performance by its refining and trading operations, The Netherlands-headquartered oil and gas major said on Thursday.

Chemicals earnings excluding identified items surged to $516m in the fourth quarter of 2016 from $182m in the same period of 2015 amid improved operating performance and lower operating expenses, the company added.

The company posted earnings of $3.5bn in 2016, a decline of 8% from $3.8bn a year earlier on a current cost of supplies (CCS) basis, with the chemicals segment yielding stable earnings.

In the downstream sector – which includes oil products and chemicals – CCS earnings attributable to shareholders excluding identified items was down 26% in 2016 to $7.2bn.

Chemicals performed better than oil products, posting stable earnings of $1.7bn year on year.

Oil products earnings declined 31% to $5.6bn for the same period on weaker refinery margins.

Meanwhile, Shell’s upstream segment performed slightly better than its downstream division, with earnings down 20% year on year at minus $2.7bn in 2016, deepening the losses posted in 2015 at minus $2.26bn.

Shell’s return on average capital employed (ROACE) – defined as income, adjusted for after-tax interest expense, as a percentage of the average capital employed – rose to 3% in 2016, up from 1.9%.

ROACE is a performance ratio which measures profitability in relation to capital employed.

“We are operating the company at an underlying cost level that is $10bn lower than Shell and BG combined only 24 months ago,” said Shell CEO Ben van Beurden, pictured on the right.

Cash flow from operations was up 69% in the fourth quarter of 2016 to $9.2bn as a result. However, the full year figure dropped 31% to $20.6bn.

Shell is aiming to raise $30bn by the end of 2018 to ease its debt pile, which rose close to $80bn after the BG deal last year.

As part of its debt-reduction programme, Shell recently sold part of its North Sea assets for $3.8bn. In January, the company agreed to sell its 50% interest in the SADAF petrochemicals joint venture with SABIC for $820m.

“We are gaining momentum on divestments, with some $15bn completed in 2016, announced, or in progress, and we are on track to complete our overall $30 billion divestment programme as planned,” Van Beurden said.

Despite the full-on debt-reduction programme in place, oil and gas production rose 24% to 3,668,000 barrels of oil equivalent (boe)/day.

Full-year chemicals sales volumes rose 1% year on year in 2016 to $17.2bn.

Manufacturing plant availability for the sector increased to 90% from 85%, largely due to recovery at Moerdijk, in The Netherlands, but partly offset by shutdowns at Singapore’s   Bukom facilities. Oil products sales volumes were up by the same amount.

“Debt has been reduced and, for the second consecutive quarter, free cash flow more than covered our cash dividend,” said Shell’s CEO.

The company kept its dividend payment steady at $0.47 in the fourth quarter, the highest in the FTSE 100, it said.