LONDON, Feb. 8�Royal/Dutch Shell Group Chairman Mark Moody-Stuart Thursday reported record full-year adjusted current cost of supply (CCS) earnings of $13.1 billion, as the group's profits surged 85% on the back of high oil and gas prices and "much improved" refining margins.
Shell's exploration and production division's earnings led the charge, contributing $9.26 billion, more than double the figure for 1999. The group's oil products business earned $2.48 billion, up 62% on the year before, while downstream gas and power provided earnings of $462 million, triple those of 1999.
Only the group's chemicals division showed a drop in earnings, down 8% to $752 million, a fact Moody-Stuart explained as the result of lower unit margins.
At over $3.5 billion, the group's adjusted CCS earnings for the fourth quarter were also an "all time record," the Shell chairman noted, 60% higher than those reported a year ago.
Moody-Stuart acknowledged the boost to group profits provided by the oil price in 2000, but underscored that cost improvements of some $4 billion across all of its business units�an annual target revised upward to $5 billion last December�had been "a significant contributor to the increased earnings" for 2000.
"Yes, the oil price has helped in our upstream results, but much more important is that the efforts of the last 2 years have produced a powerful underlying improvement in performance," he said.
"We set ourselves very ambitious targets back in December 1998 (for 2001), and we've delivered on the them," said the outgoing Shell chairman. "We have achieved more than 100% (of the targeted cost savings) in two-thirds of the time."
Cost improvements
The $4 billion in cost improvements last year came from reductions of $1.94 billion in E&P, $1.4 billion from oil products, more than $500 million from the group's chemicals division, and a combined $130 million from its other businesses.
In the last year, Moody-Stuart stressed, Shell had "practically completed" a wholesale restructuring of its portfolios started in 1998, which included the sale of more than $14 billion in assets as part of plans designed to focus the group on its "real areas of strengths."
Shell's return on average capital employed climbed to 19.5% from 12.1% in 1999. Moody-Stuart said that more telling of the group's financial progress was that, at 14.2%, its "normalized" return on capital employed�a figure that "strips out market forces" and the effect of high oil and gas prices�exceeded the target of 14% at an oil price of $14/bbl set out in 1998.
Last year, the group's oil production climbed to 2.27 million b/d, "slightly higher" than in 1999, with underlying growth of 5%, as new fields in the UK, US, Oman, and Canada were brought on stream, and there was less loss of production in Nigeria caused by "community disturbances."
Shell's gas production saw an underlying growth of 7%, rising to 85.1 billion cu m/day, as output increases in Oman, US, UK, Egypt, and Nigeria offset drops in the Netherlands and Germany.
Share buybacks
Moody-Stuart also said that the ambitious share buyback program Shell announced last year would begin "with immediate effect," a move that will kick off the repurchase of between 0.5%-3% of the group's issued share capital and could return $6 billion to shareholders.
The Shell chairman stressed that the buyback "would be a straight buyback" and would "not go toward offsetting earlier share dilutions." The initiative was approved by the group's shareholders last May but had been delayed by Dutch tax legislation.
