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Epic & Msn data

Epic	RDSB
Time:	16:35:23
Mid Price:	1501.00
Change Today:	-8.00
Change % Today:	-0.53
Fifty Two Week High:	2016.00
Fifty Two Week Low:	1235.00
Market Capital:	40464.08

Period & price data

Period	Price
Now:	1501.00
3 Months ago:
6 Months ago:
1 Year ago:

Additional information

Additional	Information
Market:	LSE
Sector:	Energy
Epic:	RDSB
News:	Latest news
Web Site:	Royal Dutch Shell
Other Articles:	12-03-200920-11-2008

Royal Dutch Shell - set for sustained out-performance

by Fat Prophets

The chasm between the immediate term picture and the long term outlook for oil supply is widening. Oil has dipped below US$60 per barrel as the global slowdown gets into full swing as the dangers for future production increase. For Royal Dutch Shell (LSE, RDSB) a dip in production has been more than offset by higher energy prices and, an armed with a substantial war chest, the oil major still looks set for a period of sustained out-performance.

Recently released third quarter results illustrate the benefits of integration. Whilst production dropped 10 percent, Shell’s downstream operations have reported higher marketing margins, higher refining margins and trading contributions, despite low refinery intake and increased operating costs.

The group’s earnings came in at US$10.9 billion compared to US$6.4 billion a year ago on a current cost of supplies basis. The 74 percent jump came in some US$3.7 billion ahead of analyst expectations.

Furthermore, cash flow from operating activities (a real barometer of health), excluding net working capital movements, was US$10.4 billion compared to US$9.9 billion for the same quarter last year.

Shell can do little to control the state of the world economy, but must keep its operations in check whilst the clouds hover. And overall, Shell’s broad group of businesses showed tremendous strength, with the Chemical and Corporate divisions being the only laggards in the group.

Shell’s exploration and production division’s earnings rocketed despite the drop in output. Indeed, earnings of US$5.5 billion compared favourably to $3.3 billion in the corresponding quarter last year.

Meanwhile, a driver behind Shell’s continued success has been its dynamic portfolio and its aggressive capital expenditure programme. During this years third quarter, both were in full effect.

Net capital investment for the quarter was an impressive US$11.2 billion. This includes proceeds from sale of the BEB Erdgas und Erdoel GmbH of around US$1.4 billion.

The recent purchase of Duvernay, the Canadian tight gas company set Shell back a cool US$5.5 billion. We believe it is an astute use of capital and the company now boasts a Canadian resource base of over an estimated 1 billion barrels of oil equivalent.

So it is clear to see that the company remains firmly on the front foot.

Shareholders will no doubt be buoyed from the latest dividend. Indeed, the company has bolstered its dividend to 40 cents per share. This represents an 11 percent jump from the corresponding period last year.

From a valuation perspective, we believe that Shell is currently trading on an undemanding prospective PE of only around 5 times whilst also yielding over 4.5 percent.

Shell continues to defy analysts’ expectations. Its integration and diversity stand it in good stead for periods where the prices for its products may not be so high. The company’s aggressive investment programme will ensure that production targets are continually met and will underpin strong earnings ahead. Shell in our view represents excellent exposure to long term strength in oil and gas prices.

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