Royal Dutch Shell unexpectedly announced the retirement of CEO Peter Voser on Thursday, as the European oil giant reported that refining operations and winter
demand for natural gas drove better-than-expected first-quarter profit.
“They exceeded the consensus estimates and our own estimates, mostly driven by strong downstream earnings,” said Jason Gammel, an analyst with Macquarie.
Net income from fell to $8.18 billion from $8.74 billion in the first quarter of 2012 — but excluding one-time items profit rose 3 percent to $7.52 billion.
Fourth quarter revenue fell 5.1 percent to $112 billion, mostly on lower oil prices, the company said.
The announcement of Voser’s departure came as a surprise to analysts, who said they view his performance as strong and aren’t aware of any corporate political intrigue.
Voser, 54, who has been with Shell for 25 years, was appointed CEO in July 2009 and has been a director since 2004.
“Peter’s leadership of Shell over the last 4 years has been impressive, reorganizing the company, delivering growth, and developing a clear forward strategy with a strong portfolio of new options,” said Jorma Ollila, chair of Shell’s board in a written statement. “I have enjoyed working with Peter, in a period of great change and progress for Shell, and I wish him well for the future.”
Simon Henry, Shell’s chief financial officer, said during a conference call with analysts to discuss the quarterly financial results that Voser’s departure “is a private and personal decision.”
Henry said that Shell’s board of directors will consider both internal and external candidates in the search for a successor.
Gammel predicted the inside look will take precedence. “Shell has a pretty strong bench of executive talent and I expect that they will look internally first for successor,” he said. “The board will undoubtedly look at external candidates as well as a matter of due diligence but there are several qualified candidates within Shell that are likely to succeed.”
In reporting its fourth-quarter results, Shell said it produced 3.56 million barrels of oil per day, up from 3.55 million a year ago, as its gas-to-liquids Pearl project in Qatar came fully online.
It success with Pearl has offset challenges in Nigeria: Shell’s recently decided to close its Nigerian subsidiary at the Nembe Creek Trunkline, halting production of around 150,000 barrels of oil a day.
“The theft is so high and the environmental damage potential so high – the thieves just move to the next pipeline,” Henry said, explaining that Shell decided to close some its Nigerian operations because of losses from theft of up to 60,000 barrels a day. “It is quite a difficult situation and it is not getting any better. It’s an uncertain environment.”
Production earnings fell 10 percent to $5.65 billion, which Henry said was largely due to lower oil prices.
“Oil price have fallen recently and this kind of volatility is a fact of life in our industry,” Henry said. “We are implementing a long-term consistent strategy against what is and will continue to be a volatile backdrop.”
Shell made several high-profile liquefied natural gas investments in the first quarter, including a proposed liquefied natural gas export facility at Elba Island in Georgia and the purchase of more than $4 billion of liquefied natural gas assets from Spanish-based Repsol.
Profits for the company’s refining arm rose 28 percent to $1.69 billion, benefiting from strong margins in its marketing and trading divisions, Henry said.
Shell’s Port Arthur Motiva Enterprises refinery, of which Shell is a co-owner with Saudi Aramco, made a modest contribution to refining profits. Motiva was expanded from 325,000 barrels per day to a total capacity to 600,000 barrels per day, but has had several operational challenges, including a June 2012 that shut down operations for several months.
“There is not a lot of earnings impact in the first quarter, but it is actually performing pretty well – it is looking good but not making a big impact on the bottom line, just yet,” Henry said.
Henry said he is especially optimistic about opportunities in liquid-rich shale plays in Canada and Argentina, and not that the company has expanding its presence in China, with 10 rigs operating in both conventional and unconventional plays.
Shell also is working to expand its portfolio in lesser known plays.
“We still have hopes of French Guyana,” Henry said, noting new plays in Benin and Gabon, as well as a new onshore drilling project in Albania.
Shell also has five exploration wells in progress in the Gulf of Mexico, Henry said.
Following the cancellation of its 2012 exploration in Alaska, Henry indicated that the company hopes to return in 2014 but is still waiting to decide whether and how it plans to proceed with drilling.
Shell’s exploration efforts in Alaska’s Chukchi and Beaufort seas ended last year with one of its rigs being grounded, and both vessels have since been sent to Asia for repairs. A recent Interior Department investigation concluded that Shell did not provide the necessary oversight to manage the risks.
“We will not drill this year,” Henry said. “We will not take a decision on when and how we drill in 2014 until we have been through some of the work with the repair yards. We need to get all our ducks in a row.”
Henry said the company will not make any decisions until “we are not left on a critical path depending on any one piece of equipment”, adding that any decision on how to progress will not come for at least another month.
Henry estimated the current value of Shell’s Alaska position on the balance sheet has been estimated at about $2.8 billion, an estimate that takes into account the riskiness of the project, the capitalized costs of the wells already drilled and the rigs.
But the potential worth of the drilling prospects are still unknown.
“It is going to be difficult to put a value on Alaska until they drill,” Gammel said. “You need penetration of the formation to determine that. We are not in a position to evaluate.”