This represented a return on average capital employed of 13%, the group said. The improved result was due to a continuing robust upstream performance, strong performance in the downstream marketing businesses and a turnaround in the refining business, according to Shell chairman Russell Caplan.
Upstream (exploration, production and natural gas)
“Once again, it’s our upstream business that is the major contributor to our profitability in Australia,” Caplan said.
“Shell is committed to growing our gas business through ongoing development of Australia’s gas resources. Over the last 12 months, Shell has been a participant in six exploration permits awarded in three different areas off Australia’s Northwest coast. We’re optimistic about the prospects for significant gas discoveries in these areas.”
Upstream profit before interest and tax in 2005 was $968 million, compared with $708 million in 2004. Shell’s upstream business benefited from record liquefied natural gas production and sales volumes in a relatively strong market.
Capital expenditure in 2005 was $467 million, significantly higher than in 2004, reflecting the inclusion of more than $300 million of capitalised exploration expenses relating to the Gorgon project.
Downstream (refining and marketing)
Caplan said the downstream business result was largely driven by a turnaround in the performance of the Clyde and Geelong refineries.
Profit before interest and tax (measured on a current cost of supply basis) was $300 million in 2005, much higher than the $43.5 million achieved in 2004. The bulk of the $267 million capital expenditure was spent on the refineries.
“Refiner margins were strong, and with our refineries operating reliably and meeting their production targets, Shell was able to capture the stronger margins,” Caplan said.
“However, continued improvement in the underlying operation is essential to make the refineries as competitive as they can be when margins aren’t so favourable.”
Apart from the improved business performance, other highlights in 2005 were meeting the Federal Government’s clean fuel specifications ahead of the 2006 deadline, and the launch of the company’s first biofuel, Shell Optimax Extreme, according to Caplan.
However, a Shell spokesperson told EnergyReview.net sister publication, EnvironmentalManagementNews.net that sales for Optimax Extreme had been disappointing.
Optimax Extreme is an E10 (10% ethanol) high-octane premium-priced fuel, and as such was vulnerable to rising fuel prices.
Caplan said Shell aimed to lead Australia’s fuel market with new and innovative products.
“Our refineries are preparing for the next round of clean fuels specifications in 2008 and 2009, with Shell’s total clean fuels investment to date being around $340 million,” he said.
Upstream outlook
Caplan said Shell anticipated strong growth in gas demand and its upstream business in Australia was well placed to supply to this expanding market.
“We’re hopeful that our ambitious drilling program will further strengthen our position and we will work hard over the coming years to ensure excellence in our project delivery,” he said.
“On the people side, we expect to grow from 55 staff in our upstream business in 2003 to over 120 staff in 2006.
“An exciting development just last week was the first shipment to China of liquefied natural gas from our North West Shelf joint venture. This is the start of a 25-year contract with Guangdong Dapeng LNG Company.”
