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Your questions - 3rd quarter 2011 results
Following receipt of the questions raised, we set out below our general responses by reference to the themes raised in those questions. As previously advised, responses to individual questions have not been provided.
We recommend that you also refer to our Annual Report and Form 20-F for any additional information that you require. Should you wish to further discuss any of the responses outlined below, please contact the IR department.
Your production is down, seems to conflict with your growth plans?
We sold some 100 kboe/d of production compared to the 3rd quarter of 2010, if you exclude these divestments you can see we have grown our underlying production by a competitive 2%. Our growth strategy is on track as planned, with start up of new projects contributing some 270 kboe/d in the third quarter 2011.
What was the production volume contribution from your large 3 new start ups QG4, Pearl GTL & AOSP?
Our three large new projects Qatargas 4, Pearl GTL and AOSP Expansion 1 contributed some 190 kboe/d in the 3rd quarter 2011. We expect production of these three projects to plateau at some 400 kboe/d.
Could you provide some insight into the funding status of your pension plans?
At the end of the 3rd quarter 2011, the funding ratios in the major pension plans are satisfactory. The funding status of the Dutch pension fund is 106%. We expect employer contributions of some $2 billion in 2011 and for 2012, which is similar to 2010 levels. Although this is all managed on a long term basis, you will get a year-end snapshot in our Annual Report / Form 20F.
What’s your view on LNG demand?
Japan is expected to take up some additional 12 mtpa in 2011, which is some 5% of forecasted 2011 global LNG demand. Japan’s additional requirements added to growing demand from Asia. We see the global LNG market tightening as a result of this while the global LNG production outlook is about flat up to 2015 when a wave of new LNG projects, mainly in Australia, is expected to start adding supply.
Why are you growing your gas production, is oil not more profitable?
Some 52% of our production is from oil and 48% from gas (full year 2010 basis). However, more than half of our gas production is contractually priced against oil. So from our total production of oil and gas combined, almost 80% is linked to oil prices. In 2012 we expect some 70% of our total production to be priced against oil.
How's the spill situation in Nigeria?
The Shell Petroleum Development Company of Nigeria Limited is the operator of a joint venture (“SPDC”) between the government-owned Nigerian National Petroleum Corporation – NNPC (55%), SPDC (30%), Total Exploration & Production Nigeria Limited – a subsidiary of Total (10%), and Nigerian Agip Oil Company Limited (5%).
Some 70% of SPDC’s spill volumes over the last 5 years is the result of sabotage, making this the main cause of spill volumes. SPDC cleans up all spills related to our operations, regardless of the cause and Shell pays compensation to affected communities for spills resulting from operational failure.
With a relative improvement in the security situation in Nigeria, 2010 spill volumes were markedly lower than 2009 and so far in 2011 the trend is similar to last year. SPDC has also been able to resume investment to reduce flaring of associated gas, with a $2 billion programme in hand to cover some 90% of SPDC’s production potential. SPDC has also cleaned up 280 spill sites in 2010. We encourage you to review all detailed publications on SPDC’s operations in Nigeria, the challenges faced and the progress SPDC is making.
What is your third quarter dividend in Euro?
The third quarter dividend is declared at USD 0.42 per share. The equivalent in EUR and GBP is announced on November 25th 2011. Dividend will be paid on December 16th. You can find the full dividend timetable on our website for this quarter as well as for 2012.
What is your expected capital spending in the coming years?
Our net capital investment is expected to be some $25 to $27 billion per year up to 2014. Net capital investment assumes proceeds from asset sales of some $3 billion per year. So far in 2011 we are ahead of our asset sales target, and somewhat slower on organic spending, indicating we could be below $25 billion net capital investment in 2011, with $14 billion of net spending in the first three quarters of 2011. However, organic spending on new projects is trending higher in the coming quarters. Organic capital investment is expected to increase to around $30 billion in 2012.
What are your exploration plans for the coming quarters?
We expect to drill some 40 key wells across 2011 and 2012, reflecting the ample opportunities we have in our portfolio.
For the rest of 2011 and the year 2012 our plans include a multi well drilling campaign in the deepwater Gulf of Mexico, including appraisal drilling for the Appomattox and Vito finds, further drilling in Brazil sub-salt, and our first well in Tanzania. Also, we are planning wells offshore Alaska, both in the Beaufort Sea and Chukchi Sea. Onshore North America, we will continue with our tight gas drilling, appraising and developing across our sizable portfolio, including recently added positions Marcellus and Eagle Ford.
In China we are working on a drilling campaign at our onshore gas acreage in the Sichuan and Ordos basins to establish commerciality. In Australia, we plan a multi well campaign, both onshore Queensland as part of the Arrow joint venture and offshore through operated and non-operated positions in the North West Shelf.
What is your outlook on your asset sales programme?
In the first 9 months of 2011, we completed some $6.2 billion of asset sales including some $1.8 billion in the 3rd quarter. We have delivered on our target of $5 billion of disposals in 2011, ahead of schedule. We have further asset sales underway, for example downstream activities in Africa as well as gas infrastructure in Norway. These transactions, with combined expected proceeds of $1.7 billion, are expected to complete across the end of this year and into 2012. Although asset sales will continue as part of our ongoing portfolio optimization, we expect a more normal pace of some $3 billion per year going forward after a very active 2010 and 2011.
What are the drivers of your LNG growth?
In the last few years we delivered new LNG projects, including Qatargas 4 and Sakhalin II and in addition to this we realized new feedgas for Nigeria LNG. Hereby, Shell has maintained its global leadership in LNG amongst all IOCs. Our world-wide LNG capacity is 20.5 mtpa following the successful start-up of Qatargas 4 and we have a further capacity currently under construction, which should increase of our current capacity of more than 40%.
In the 3rd quarter 2011 compared to the same period in 2010, Qatargas 4 was the main driver of growth in LNG sales volumes. Our 3rd quarter 2011 earnings reflect the increased contributions from our LNG portfolio, where some 80% of LNG sales volumes is priced against oil.
Definitions & Cautionary Note
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