Published: October 31 2008 02:00 | Last updated: October 31 2008 02:00
For those not still awake at the back, it was another quarter and another set of consensus-busting figures from Europe’s largest oil company.
Earlier this decade, during Sir Philip Watts’ reign, analysts used to open an envelope on results day and see what came out. Now, under Jeroen van der Veer, the stickler for asset efficiency installed in 2004, Royal Dutch Shell has become a metronomic earnings machine, beating consensus forecasts for nine straight quarters. The engine sputtered earlier this year, but yesterday it was humming again. Net third-quarter income was about 11 per cent ahead of expectations at $8bn. Investors can probably restore Shell to income portfolios as a hedge against dramatic events elsewhere.
Consistency is the consolation that Shell offers for lack of raw excitement. Its focus on developing big, long-life projects in unconventional fuels should ultimately create a portfolio with lower decline rates and less risky capital spending. But actual growth – real, pulse-quickening volume growth – is still years away. Meanwhile, management is steering resources to fiscally stable regions such as Australia and Canada. Four-fifths of investment has been upstream, in exploration and production – a sensible strategy in an era of high oil prices. Downstream operations can be warmed over indefinitely, provided Shell invests slightly more capital than refineries amortise.
The challenge for finance chief Peter Voser, the talented successor to Mr van der Veer who takes over next June, is to ensure investors share the group’s faith in its long-term vision. This will not be easy, especially if the oil price remains subdued: Shell’s low exploration and production earnings per barrel, relative to peers, highlight the group’s big bet on costly, hard-to-get-to fuels such as oil sands. But if Shell is right, this is where the other oil majors will have to go if easy energy continues to dwindle and resource-holders keep pushing up royalties. Shell, once an industry outlier, could yet be seen as a pioneer.
Copyright The Financial Times Limited 2008