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Shell Undeterred by Disappointing 4Q Earnings

Brian Hicks

Written By Brian Hicks

Posted February 3, 2012

Rising investments costs and weaker than anticipated fourth quarter earnings have analysts and investors questioning Shell’s (NYSE: RDS) ambitious financial and production targets.

Europe’s biggest oil company, Royal Dutch Shell, reported a 4.3 percent drop in fourth quarter earnings to $6.5 billion, and chalked it up to weaker industry refining margins and the decline in American natural gas prices.

But despite disappointing earnings for the quarter, CEO Peter Voser expressed his satisfaction with the company’s overall performance, with net profit up 54 percent to $30.92 billion in 2011.

Weak fourth quarter results aside, Shell boasts ambitious plans for big growth in the coming years. Aggressive expansion projects along with a boost in production and capital investments aim to produce a 50 percent hike in cashflow accompanied by a 25 percent rise in oil and gas production.

A reported 60 new projects are currently under development around the globe, with a large percentage of expansion efforts to take place in North America.

For the 2012 outlook, 80 percent of the $30 billion in capital expenditures will go towards production projects with an emphasis on liquefied natural gas (LNG), which allows compressed gas to be transported between places without a pipeline.

Such LNG projects will be made possible by the company’s vast supply of natural gas currently stowed under shale fields in Texas and Pennsylvania, so expect to see heavy development, perhaps at high cost to the environment, in those regions.

Shell is (perhaps too eagerly) optimistic about its upcoming projects and longterm performance, but analysts are skeptical about the company’s lofty financial and production targets.

With the actual execution of Shell’s projects in the works depending heavily on a substantial increase in capital investments, analysts at Investec and Citigroup expressed their concern about Shell’s return on capital and the hesitation felt by investors that the company’s ever-increasing investment expenditures are producing a “more for less” effect.

Until next time,


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