The oil giant gets off to a flying start in 2012.
Oil giant Royal Dutch Shell (LSE: RSDB) this morning announced forecast-beating earnings for the first quarter of 2012, as higher oil prices outweighed the impact of lower US gas prices, which slumped to their lowest quarterly average in 10 years.
The Anglo-Dutch group -- the first of Europe's oil majors to publish results this season -- reported an 11% increase in headline earnings. Excluding one-offs, the rise was 16%, as earnings gushed to $7.3bn from $6.3bn a year earlier. This was above consensus analysts' expectations of $6.7bn.
The market has applauded the results, pushing the shares up over 3% to 2,260p in early trading.
Operations and outlook
As well as benefiting from higher oil prices -- Brent crude averaged $118 a barrel in the first quarter compared with $105 in the same period last year -- earnings were boosted by an improved operating performance and increased upstream volumes.
"We are implementing our strategy by improving near-term performance, delivering a new wave of production growth and maturing the next generation of growth options for shareholders," said chief executive Peter Voser.
Shell generates bucketloads of cash -- $13.4bn this quarter -- and is investing heavily in new energy projects. Capital expenditure for the quarter was $7bn. In its latest move, the company is looking to take a prime position in the race for east Africa's gas reserves, with a recommended $1.8bn offer for Mozambique- and Kenya-focused exploration firm Cove Energy (LSE: COV).
A huge chunk of Shell's annual cash generation goes to shareholders by way of the dividend. In fact, the company was the UK's biggest payer last year, its distribution representing 10% of the entire market payout of £68bn.
As previously signalled, Shell has declared a first-quarter dividend of 43 cents per share. The dividend will be paid on 21 June and the ex-dividend date is 9 May. Shareholders won't know the sterling conversion rate until 1 June, but at the current rate of around 1.6 dollars to the pound it's getting on for 27p per share.
Ahead of this morning's results, analysts were forecasting a 110p dividend for the full year, giving an attractive yield of 4.9%.
Shell's shares have been on the slide since the start of this year on macro concerns about oil supply and a potential loss of momentum in earnings growth for the oil majors. Forward price-to-earnings (P/E) ratios have become low across the board and, even after the uplift in Shell's share price this morning, the forward P/E is still less than 8.
Shell's dividend yield is around the same as rival BP (LSE: BP), and while BP has a lower P/E, both companies look good value to me, especially for income seekers.
As Shell's chief exec says, in the near term there will be volatility in energy prices as a result of economic and political events, but in the long term "energy demand fundamentals are robust".
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