Rising production and lower exploration costs enabled Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) to log a solid rise in profits during the third quarter, despite the lower price of oil.
The Anglo-Dutch giant said that core profits, excluding exceptional items, rose by 31% to $5.8bn during the third quarter, up from $4.5bn during the same period last year.
Shareholders were rewarded with a 4% dividend hike, taking the third-quarter payout to $0.47, or 29.4p at today’s exchange rate, and Shell also reported that it had bought back 18.5m, or 0.3%, of its own shares for cancellation during the quarter, at a cost of $0.8bn.
How did they do that?
Today’s results appear to be proof that Ben van Beurden, Shell’s chief executive, is delivering on his promise to improve the balance between growth and shareholder returns.
Shell spent $8.4bn on capital investment during the third quarter, down from $9.4bn during the same period last year. Expenditure during the quarter was also offset by income of $3.6bn from divestments, reducing net capital expenditure to just $4.8bn.
Shell’s profit growth wasn’t solely down to cutting expenditure or asset sales: excluding exceptional items, profits from Shell’s upstream (oil and gas production) division rose from $3,466m last year to $4,343m this year, while downstream (refinery and fuel sales) profits rose from $892m to $1,793m for the third quarter.
These figures were backed by improved third-quarter cash flow: underlying operating cash flow was $11.1bn, up from $9.9bn for the same period last year.
Production changes
Shell’s total oil and gas production fell by 5% to 2,790,000 barrels of oil equivalent per day (boepd) during the third quarter, but when the impact of divestments and other exceptional events was stripped out, the firm said production from continuing operations was up 2%.
This was partly due to major new oil fields in Nigeria, the US and Malaysia being brought into production during the period. Shell’s share of production from these assets is expected to peak at around 116,000 boepd.
Is Shell still a buy?
Shell’s share price performed very strongly during the first half of this year, but has fallen back with the price of oil and is now unchanged on the start of the year.
For me, today’s results confirm that Mr van Beurden is delivering on the promises he made when he took charge in January. Trading on a forecast P/E of 9.7 and a prospective yield of 5.2%, I believe Shell is a solid buy.