Royal Dutch Shell (NYSE:RDS.A) is one of the largest corporations in the world. The company is involved in all aspects of the oil industry including exploring, drilling, producing, distributing and selling. In 2011, the company's total earning was $28.6 billion, up from $18.6 billion a year ago.
Shell has been listed in NYSE since 2005. Then, the share price of the company was $61.20, and the company currently trades for $73.54. This translates into a growth of 20.16%. Keep in mind that right before 2008's market crash, Shell was trading for $86 and the share price fell to as low as $41 within a few months.
When the company was first listed in NYSE, it was enjoying a revenue of $82.64 billion. Today, the company's revenue is $115.31 billion, indicating a growth of 50.86%.
Click to enlarge
During the same period, the company's earnings per share (TTM) grew from $5.67 to $10.08, up by 77%. Shell's free cash flow grew from $19.32 billion to $20.91 billion, up by 8%. The company's book value has increased from $94.07 billion to $171.00 billion, up by 82%. Currently, at 7.3, the company is enjoying one of its lowest P/E values since the market crash in 2008/09.
The company currently enjoys high oil prices; however, it suffers from low natural gas prices and low margin on the clean energy it offers. In 2011, the company produced 1.2 billion barrels of oil. The company currently holds proven oil reserves of 14.3 billion barrels, which should last about 12 years with its current production rate. In the last 3 years, the company's reserve replacement rate was 160%, which means, for every 10 barrels of oil Shell produced, it discovered 16 barrels of oil.
Shell has many ongoing projects that are likely to prove very profitable in the future.
In Australia, the company has 2 promising projects that are in later stages. The company will be investing more the the next stage of North West Shelf Project, which is expected to produce 110,000 barrels of oil per day. In the same country, Shell spent $300 million with Petro China (NYSE:PTR) to acquire Arrow Energy Holdings.
In Iraq, Shell received approval from the government to form Basrah Gas Company along with Iraq's South Gas company and Mitsubishi Corporation. Shell will own 44% of this company. In Malaysia, Shell signed contracts with the government and renewed some of its older contracts, giving the company right to produce oil in the country until at least 2040.
French government approved Shell's working interest in the deepwaters near French Guyana. Shell spent $700 million in 2011 to acquire new possible oil fields in Australia, Russia, Turkey, Canada, Colombia and the USA. Also, the company will own 20% of a petrochemical complex in Qatar in a joint venture with Qatar Petroleum.
Shell bought hundreds of new gas stations, including 253 in UK for a fee of $400 million. The company recently made a $1 billion dollar offer to acquire Cove Energy, a company that has stakes in several African countries including Mozambique. Shell spent $3.6 billion on oil exploration in 2011, and the company plans to increase this number to $5 billion in 2012.
A Word on Dividends
The company currently yields 4.57% in dividends. This sounds good compared to ExxonMobil's (NYSE:XOM) 2.1% and Chevron's (NYSE:CVX) 2.97%, however Shell hasn't increased its dividends in 3 years, which indicates not a strong history of dividend growth. The company plans to increase its dividends in 2012. Keep in mind that Shell is a Dutch company and Netherlands has a witholding tax rate of 15% on dividends. In addition, Netherlands collects taxes from all stockholders amounting 1.2% of their portfolio per year. These taxes can be claimed as a tax credit in US, however.
A Word on Competition
Shell competes and partners with many companies in the energy industry. In many cases, the company will partner with another company on a project and compete with the same company on another project. In the oil industry, most of the competition is seen in the supply side rather than demand side as there is no usually trouble of finding demand for the product. Among the international corporations, ExxonMobil, BP (NYSE:BP) and Chevron are the only ones with more proven reserves than Shell. In Middle East, East Africa, and off-shore US there is strong competition for oil reserves. For example, in Iraq, Shell partners with ExxonMobil to extract oil, however in east Africa, the two companies are competing for oil fields.
Analysts generally rate Shell as buy. Out of the 38 analysts covering the stock, 27 rate it as either buy or outperform, and only 1 rates it as sell. I also believe that Shell is a good company to own for those wanting to diversify their portfolio, especially dividend-hunters.
Disclosure: I am long RDS.A.