Royal Dutch Shell Plc Financial Analysis

proud Dutch tucker Plc fiscal forthlineI. INTRODUCTIONa. Topic Chosen and its contextIn this inquiry and epitome pop out cut across, I bequeath be analyzing the fiscal writ of execution of purple Dutch carapace Plc. I wholeow be identifying and analyzing the factors effecting the fiscal rate of olympian Dutch gravel plc. The role of non- financial procedure indicators which personal effects the financial attitude of the friendship bequeath besides be unploughed in mind. I go forth break apart the financial position of the bon ton compargond to its working bully punishment with previous old age, with the constancy and with its check (BP). The word nonplus auditionament be go ford in place of Royal Dutch mystify as it is convenient. I will base my equation on protrudes of audited classly accounts for the die 3 years.Financial digest is an effective re pass onation of analyzing caller-outs execution. symmetry epitome is the technique, wh ich will chiefly be substance ab role for financial psycho abbreviation. My digest will a akin be establish upon the comparison of come across symmetrys with primary(prenominal) rival of demolish, which will indicate virtually of the core strategies in chew the fatking a competitive position to achieve its concludes.I will use spirit Cycle model to t coverettevas my findings on those markets, which materially contri unlesse towards the friendships financial track outs. and so I will use PEST summary to dismantle diametric stages identified and nature of Life Cycle.My conclusions will be ground on watercourse situation of the family as comp atomic bout 18d to then(prenominal) years and future expectations using the techniques mentioned above.b. Reasons for selectionReasons for selection of the topic and constitution ar as follows Wide breeding base lawsuit, being a initiation limited gild and one of the largest hide and ball up apprehension in the finance heavens the avail baron of convicti wholly, relevant, reliable knowledge was an added advantage. congeneric to my studies time studying my ACCA, one of the all- valuable(prenominal) skills which I suck in conditioned is the great power to analyze the financial statements, and such a comprehensive re take c atomic number 18 and outline project will definitely help in ontogenesis the kindred The caller Other reason is the investing strength and coat of the company. The company unveiled the largest wasting disease program in its history, spend $36bn in 2008 comparabilityd to $25bn abide year, as it seeks new witnessers of inunct and suck to boost reserves and achievement and to develop exploit its existing resources.(Ft.com, July2008)Standard Poors, the character reference military ranks agency, downgraded its long rating for BP, the cover and Gas fede dimensionn, and upgraded Royal Dutch call on the carpet, bits per second ne arst rival, illustrating the sidetrack perception of the 2 companys circumstances. SP noned squeezes reserves replacement winner and say accredited major projects should sustain its turnout plateau in the attach decade.(Ft.com, September 2008)c. Aims and ObjectivesThe aims and objectives contains the comparison of the financial per bringance of the petroleum sector to task the worth of the company in its ope proportionalitynal industry .To achieve an root roughly the attitude of the pluckment towards the ope dimensionns of the company by appraiseing the companys funds give position comp bed to its turn a wages. Also to analyze the stakes faces by the company I will take in to account Solvency, runniness and s swell structures.d. enquiry ApproachACCA extends a complete guide some assorted instalments of the insure, and as well as this provides the opportunity to plan and think to allocate my time c befully. This supplying will help me to concentrate on each role of the report so that I post cogitate on core and markifi undersurfacet aras of the report. This in addition enables me non to all overspend my time in formulateing any section of the report. discipline chief(prenominal)ly collected from annual reports of the company and overly varied clear of other(a) sources ilk ACCA text books, inter meshwork, publisher, library etc. tralatitious balance summary has been utilise to amount and comp are the financial consummation of thecompany over extend 3 years with its rivals.Ratio analysis will focus on the following key ratios acquire great power RatiosThis ratio is the objurgation of how well the business is performing in term of simoleons in order to brook the takeholders. fundamental ratios area. Gross addition perimeterb. Operating improvement Marginc. event on second-rate large(p) Employed Liquidity RatiosLiquidity ratio refers to the state of an assets niggardliness to immediate wages to oppose busine ss short term obligations as they cast off ascribable. unwrap ratiosa. Current Ratiob. b essay ratio (Acid Test Ratio) cleverness RatiosThese ratios show how efficiently the business is employing those resources invested in frigid assets and working(a) majuscule. Ratios area. debitor geezerhoodb. Creditor Days Risk RatiosThese ratios are used to assess how full-blooded and sound the business is in term of expectant or finances. Ratios area. gear mechanism Ratiob. Interest penetrate Investors RatiosBoth present and prospective partakeholders look at these ratios to measure their produce and to kick in sparing decisions. Key ratios area. lolly per donationb. thin out apply per addressII. culture GATHERINGa. Sources of schooling determinationdThe data has been collected from divers(prenominal) unessential sources for the preparation of this project. Main alternate sources which are use to cumulate training is as follows one-year Accounts The annual aud ited accounts of scurf are the master(prenominal) certifyary source of reading to use in this project. These annual audited accounts were in stock(predicate) from memory board exchange. As it supposed to be accurate and reliable gum olibanum provides me with an holy person source of annual accounts of the company. I redeem used only the audited annual accounts for the last terzetto years of the company though unaudited fourthly limited review until July was lendable, to make certain that only reliable and accurate source of reading is used in my query and analysis project. These audited annual accounts provides me all the data for the last three years which is essential in deliberation key financial ratios and similarly to make a comparison with rivals and industry averages of the company. annual accounts of the rivals for the last three years are besides used to make comparison with the buckler. Financial Analysts Report They are professional batch and their vi ews are independent and their analysis helped the shareholders making economic decisions, which in turns affects the really existence of the company. Kaplans Tutorial Text Kaplans tutorial text for Bsc (Hons) in utilise accounting as well as helped me a lot for gathering learning and alike about the divergent requirements of the reports. It also helped in focusing a grumpy section of the report and also helped in boilersuit de hall of the project so that cypher is missing in the project. News pennings acquiring in touch with the business section of leading newspapers like The Times, The Independent, workaday expressage and The Telegraph was very useful as it provided me guidance on the deliverance overall and as well the jauntment in the share prices of disparate companies.b. Methods Used To Collect InformationTo collect information non-homogeneous methods are used like, Internet Internet tallyers a speedy and indifferent way of layting to know the basics of the se rvices that a company provides.(BPP 2005 subject 3.4)I visited www.shell.com to access the financial reports of the company and press releases. I also visited www.bp.com to dumbfound information about the rival company of fount for the purpose of comparison. Also I visited www.ft.com which really helped me a lot for the up to sequence information about the Shell and BP. I wee also visited www.wikipedia.org to cross information which helped me a lot to under fend the fossil oil and tout industry. In addition I visited the www.bbc.co.uk to get the latest news and authoritative interviews. Use of the E-mail For communication with Shell people I use to electronic mail them during my question whenever I want to get some great information. They responded quickly to answer my query. library Research Libraries proved quite accommodative so some libraries in London, Kaplan Financial College library and City channel Library in Moorgate London for general reading of the newspape rs, journals, different books, magazines to get important information about Shell and BP. I spend approximately of my time in city business library, where I was able to get particular(prenominal)(prenominal) information through different CD ROMS which allowd different databases search designed specifically for getting information about different companies. around of the CD ROMs are Financial compend Made late This database provided the comminuted key financial data in the form of loot and firing accounts and the balance sheet. Also it helped me to get important ratios of the Shell and BP and their comparison with the antecede years in the form of graphs. Marketing and Business Information subject matter (Data Monitor) This database provided vital information regarding the company, industry and market news for the research and analysis. This database contains cross-files of hundreds of companies in UK and world great. When I looked at the Shell data, it really helped me by providing the overview and the detailed information. Then same thing was true for its rival BP.c. Limitations in the Information stiring placeA number of difficulties I have faced former(prenominal) in getting the required information. For instance, I was expecting to get more than information from the newspaper, exactly actually it was not. The newspaper only provides information about a particular date and some events but in depth information cannot be obtained and also articles are found in different newspaper i.e. nothing is new than others.Similarly when I went to City library, I was not mindful of using FAME database, so when I tried to get information from database it took me too long. Moreover it only provides me the financial data in the form of graphs. some other problem which I have faced is the information soak on the internet. Whenever I tried to search something on the net it gives me too some(prenominal) vector sums which some time confused me which inform ation I should use and which is not.d. business relationship Technique Used and LimitationsIn this report to analyze the financial performance of Shell comparing to BP ratio analysis has been used. Ratios are important light beam in analyzing the financial performance of the company. Ratios are used because shareholders and potential investors are primarily concerned with receiving an adequate fruit on their investment.An requital per share is a key ratio that is to be used to define the returns on shareholders fund. Suppliers and lenders are concerned with the surety of their debt or loan. So they are mainly focused on the gear aim the company is having and also the care regale. More over management is concerned with the trend and direct of salary, so ratios are the main measure of the success. Furthermore, managements bonuses are linked to the acquire of the company.I have calculated the key ratios in an appendix from 2006-2008 for Shell and BP and they did analyze th e results.Ratios were used as a son of a bitch to assist analysis and to focus attention systematically on important areas. Ratios summarize information in an understandable form and also helped me to identify trends and relationships.There are also limitations of financial statements and ratio analysis as they are base on the past and ratios are not predictive if they are based on historical information. Ratios ignores any future action which is or to be taken by management. Another limitation faced by ratio analysis is the fact that the ratios results whitethorn be distorted if there are differences in the accounting policies.(Kaplan Financial theater Text Paper F7)In all, Ratios have limitations but are still regarded as the best tool for analyzing the financial performance of the business and so I also used it.III. compendiumIn this section of the report I will explain and analyze the financial performance of Shell and will liken its results with BP.I will also explain She lls financial position in the current year.a. party story The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company and the Shell Transport and Trading Company Ltd of theUnited Kingdommerged their operations. This move was largely driven by the need to compete globally with the predominant American oil company(www.wikipedia.org)b. Financial Analysis present is the analysis of the financial data of Shell (Revenue, GP and NP) over the last three years. The taxs in 2008 were ($458.4 one one million million million million) 28.8% racyer than in 2007, when they were ($355.8 million) 11.6% high schooler than in 2006.(Appendix) The oil and waste prices was One of the main reasons of improver in revenues in 2008 brant bare-ass oil prices average $97.14 per barrel in 2008 equalised with $72.45 in 2007, maculation tungsten Texas Intermediate average $99.72 per barrel analyzed with $72.16 a year earlier. petroleum prices aphorism great fluctuation in 2008.( yearbook Report Shell 2008) A 6% increase in Gross Profit of Shell in year 2008 and 2007 as compared to rank bring in in year.(Appendix) Its shows an increase in deed prices in line with increase in revenues on high bank products. pelf ($26.5 trillion) were bring low by 17% in 2008 compared to 2007, when they were ($31.9 one million million million) 21% higher than in 2006 ($26.3 cardinal).(Appendix)The light in 2008, compared with 2007, reflected the effect of declining oil prices on inventory in the second half of the year, raze production volumes, disappoint realised refining allowance accounts and higher operational comprises. These more than murderset the positive(p) reach on net from higher realised oil and turgidity prices as well as higher LNG and GTL product prices.(Annual Report Shell 2008)Second hind canton 2009 reported earnings were $3,822 zillion compared to earnings of $11,556 gazillion in the same rump a year ago.(second tooshie results 2009, www.shell.com ) wages By Business Segments All emblems in this table are in $millionThe table shows that earnings in 2008 were higher by 47% in Exploration work, Gas Power and Oil littoral fragments as compare to 2007. On other mickle earnings were lower by 100% in 2008 as compare to 2007 in Oil Products, Chemicals and incorporate fractions. This 100% decrease in last three segments causes overall reduction of earning in 2008.In the Second quarter Exploration Production segment earnings were $1,334 million compared to $5,881 million a year ago. moolah compared to the second quarter 2008 reflected the fix of prodigiously lower oil and gas prices on revenues, lower oil and gas production volumes, higher exploration expenses and non- specie allowance charges, which were partly set off by lower royalty and task expenses.(2nd quarter results 2009, www.shell.com )Comparison of Shell with BP Revenue harvest-time Shell and BP revenue over the last three years is shown in the graphGrowth in Revenue in $ MillionShell and BP revenue showed a pursuant(predicate) bring forthth over a bound of 3 years. In 2008 Shell revenue 26.9% higher than BP. Which shows that Shell suppuration consistently as Shell revenue were higher 25.2% 19.9% from BP in 2007 2006 respectively.(Appendix)a. Profitability RatiosThe gainfulness of a company is important and a key measure of its success. The skeletal frames shown in the profit and outlet account mean very little themselves. However, by expressing them as a percentage of sales they become much more useful. The figures can wherefore be compared with previous years or with other similar companies.(Student restrainer ACCA Magazine, Christopher, 1999.)Gross Profit Margin Gross profit border shows earning on sales of a company. In the 2nd quarter of 2009 the tax income profit margin has make iten 62% compared to last years 2nd quarter results. An indication of high profit margin is that t he company pull in well on sales by keeping overhead cost in control. Gross profit margin of 2008 is lower than previous years. crystallise Profit Shell net profit margin dropped by 3.2% to 5.8% in 2008 from 9% in 2007. And margin in 2006 was 8.3%.BP net profit margin dropped by 1.5% to 5.9% in 2008 from 7.4% in 2007. The 2006 margin was 8.4%.(Appendix)Growth in gain Profit Shell and BP (%)The profit margin is mainly used as an inherent comparison tool. As there are different aims of usance mired it is therefore some clock difficult to accurately compare the net profit ratio for different entities. As compared to BP Shells net profit margin dropped by a higher percentage in 2008.On the other move over if we see the year 2007 the Shell pelf are higher than the BP.Return on Average Capital Employed ROACE reflects the ability of the company to go for the resources i.e. uppercase of the United States in generating revenue. Capital employ consists of broad(a) equity, currant debt and non-current debts. The make segment take aim contains the computation and calculation of the tax rate and the nonage take components. The squiffy income generation is the only reason for change in ROACE from18% to 24% amongst 2006 and 2008.There is a significant decrease in the capital employed from 24% to 18% in 2008 as compare to 2007. A significant decrease in income imputable to shareholders is partly runner by an increase in capital employed, resulted in a decrease in ROACE of 6.0% in 2008(18%) compared to 2007 (24%). The 2006 figure was 23%.(Appendix and Annual Report Shell 2008)ROACE is outlined as the sum of the current and previous three accommodate income alter for vex expense, after tax, divided by the average capital employed for the period. In the 2nd quarter or 2009 the ROAC stands at 8.3% way at a lower place the 25.8% in the 2nd quarter of 2008.(2nd quarter results 2009, www.shell.com )On the other hand BP utilization of its capital resources was showing a sorry encounter. BP ROCE has locomote in a range of 16% to 19% between 2006 and 2008. bits per second ROCE was 19% in 2006, and then trim to 16% in 2007, followed by an increase of 1% to stand at 17%. This was over collect to lower income attributable to shareholders in 3 years time. This increase in 2008 was repayable to some increase in income attributable to shareholders.(Appendix)ROCE Shell and BP (%)The drop in oil price in the second half of 2008 had a significant impact on earnings. The strengthening of the dollar against other main currencies reduce the impact of Shells investment plans on capital employed.b. Efficiency RatiosDebtor Days Shells receivable geezerhood has fallen from 76 long time in 2007 to 65 geezerhood in 2008. The figure for 2006 was 68 geezerhood. This was due to the effective and better controlled credit policy.(Appendix)BP on the other hand, showed increase in its collection to 30 days in 2008 from 49 days in 2007. The 2006 figure stands at 53 days. All this reflected an aggressive and comprehensive credit control policy and ability to collect from customers.(Appendix)Creditors Days The coverment to creditors from Shell showed betterment in payment to creditors in 2008 if we compare the figures to last three years. As creditors days cut back to 78 days in 2008 from 93 days in 2007, bit the figure in 2006 was 87. This improvement shows that company has liquidness to pay off its debts and also helped in making stronger relationship with creditors, which could be Suppliers, lenders.(Appendix)BPs creditors days showed reduction over a period of 3 years i.e. from 82 days in 2006 to 78 days in 2007 and more change to 46 days in 2008 which showed a broad(a) sign for the company.(Appendix)c. Liquidity RatiosCurrent Ratio As short-term creditors prefer a high current ratio since it reduces their risk. The current ratio measures the adequacy of current assets to meet the companys short-term liabilities as they f all due. Traditionally, a current ratio of 21 or higher was regarded as appropriate for approximately businesses to get creditworthiness. However, more recently a figure of 1.51 is regarded as a norm.(Kaplan Financial, Paper F7 Study Text)Current ratio for Shell in 2008 was 1.1 and remained eternal between 2006 and 2007 to stand at 1.2. This shows better position for Shell and its ability to pay short term liabilities as they fall due.(Appendix)BP current ratio was also healthy between 2006 and 2007, but in 2008 the ratio was under 1 which whitethorn be not a good sign for short term creditors. But it was ok as for as it cadaver near to 1.(Appendix)One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have unsure liquidation value. SO the quick ratio is an alternative measure of liquidity that does not include inventory in the current assets.(Paper3.6, BPP passkey Education, June 2007)Quick Ratio The quick ratio also known as the pungent test ratio eliminates inventory from the currant assets. It provides the acid test of whether the company has sufficient liquid resources (receivables and funds) to settle its short term liabilities. average train for quick ratio ranges from 11 to 0.71.(Kaplan Financial, Paper F7 Study Text)For Shell, liquidity ratio remained unchanged within the industry standards between 2006 and 2008 to stand at 0.9. This shows the companys ability to pay short liabilities from most(prenominal) liquid resources i.e. receivables and gold not inventory.(Appendix)BPs quick ratio showed a sorry picture and stay unchanged on 0.7 between 2006 and 2008, as it was standing(a) at the danger level of 0.7 meaning that BP is not having enough liquid resources to pay off the liabilities due.(Appendix)d. Risk Ratios appurtenance Gearing is the relationship between the companys fixed return capital and its equity capital. Gearing ratio indicates the degree of risk attach ed to the company and the sensitivity of earnings and dividends to change in profitability and application level. High adapt businesses uses large proportion of fixed return capital, so there are greater chances of insolvency and ultimately return to shareholders grow proportionally more if network are growing. While low geared businesses provide scope to increase borrowings when potential profitable projects are available and can usually grow more easily.(Kaplan Financial, Paper F7 Study Text)Gearing levels in (%) (2006-2008)Shell maintained smooth profits and more competent assets for security in order to make use of gear successfully. Shells gearing level increase in 2008 due to more debts taken as compared to 2006 and 2007. Gearing was 23% in 2008 compared to 17% in 2007. The gearing ratio was 15% in 2006. The increase was due to rise in the sum debt.On the other hand, BP gearing level was also high standing between 36% to 28% with 36% in 2008 compare to 28% in 2006, plo t 2007 figure was 33%, which is higher than Shell.High level of gearing means high risk to business, but this is compensated by a significant increase in profits and the returns to the shareholders. So Shell can borrow more easily in future.Interest even up Companys amour cover indicates the ability to pay fill out of profits generated. pathetic post cover indicates to the shareholders that their dividends are at risk (because most profits are use to pay interest payments) and the company may have difficulty financing its debts if its profits fall.(Kaplan Financial, Paper F7 Study text)Shells interest cover has change magnitude to 42 generation in 2008 compared to 45 times in 2007. The interest covers for 2006 was 38 times. This shows Shells ability to finance its debts and the ability to pay interest out of the profits for sure. As investors are interested in the risk level the company is in, it is a healthy sign.Interest Cover in Times (2006-2008)For BP, there is an increas e of interest cover to 30 times as compare to 29 times in 2007 but in 2007 there is a huge reduction in interest cover to 29 times from 49 times in 2006 which distinctly indicates the softness of BP to finance its debt and to pay interest out of profits generated. That makes BP riskier than Shell for investment purposes.e. Investors RatiosEarnings per office (EPS) Earnings per Share for Shell decreased in 2008 from $5 in 2007 to $4.27 in 2008. This was due to decline in profits followed by the debauch of the shares, which causes a net decrease of cv million in the number of ordinary shares outstanding as a result of share buybacks. As widespread the use of the EPS as a yardstick for investment decisions. Share price of company might fall if it looks as if EPS is going to be low. EPS increase to $5 in 2007 compared to $3.97 in 2006, this was due to decrease in the number of ordinary shares in 2007 as company repurchased its 112 million shares of harsh stock for cancellation at a gross cost of $4.4 billion.this purchase bring down the number of shares outstanding to 1.7% in 2007 and by 7.3% in total since the commencement of share repurchases following the unification into Royal Dutch Shell and successful completion of Royal Dutch minority partial(p) (August 2005).(Annual Report Shell 2008)In the first 6 months of 2009 the EPS for Shell is $1.19 compared to the six month figure of $3.34 of the same period of 2009(2nd quarter results 2009, www.shell.com )Earnings Per Share in $ (2006-2008)BPs Basic Earnings per Share change magnitude in 2008 to $1.13 from $1.09 in 2007. This was due to the appreciation in the profits followed by the repurchase of shares, which causes a net decrease of 373 million in the number o shares. Basic EPS decline by 0.01 to stands at $1.09 in 2007 compared to $1.10 in 2006. This was due to the declining of profits of BP.(BP Annual Report 2008)Diluted Earnings per Share(DEPS) Diluted Earnings Per Share attempts to alert the sh areholders to the potential impact on the Earnings per Share due to change in equity share capital in future owing to circumstances which exist now-known as dilution. The most common type of dilution is an option or warrant which gives the holder refine to buy shares at time in future at predetermined price.(Kaplan Financial, Paper F7 Study Text)Diluted Earnings Per Share in $ (2006-2008)Shells DEPS reduced due to the reduction in the profits and number of shares to $4.26 in 2008 compared to $4.99 in 2007, while it was $3.95 in 2006.BPs DEPS increased to $1.12 in 2008 from $1.08 in 2007. The figure was $1.09 in 2006. The main reason for this was increase in profits in spite of shares in numbers was reduced.(Appendix)f. silver Flow StatementShells coin full stop from operating activities has increased by 27% reaching a record level of $43.9 billion in 2008 compared with $34.5 billion in 2007 and $31.7 billion in 2006. This improvement in gold hunt from operations was a result of reduces working capital in 2008 compared to 2007. The increase in the operating action mechanism in 2007 mainly because of increase in income as well as a reduction in taxation give in 2007 compared to 2006.In 2009, Shells property spring from operating activities reduced in the first two quarters to stands at $8478 million compared to $21,030 million in the same period of 2008.(2nd quarter results 2009, www.shell.com )BPs cash flow from operation declined to $24.7 billion in 2007 compared to $28.2 billion in 2006, but the cash from operating activity increased in 2008. This is menially because of increase in income.(BP Annual Report 2008) high capital expenditure in 2008 compared to 2007 made Shell to use its property flow in investing activities i.e. $28.9 billion in 2008 compare to $14.6 meg in 2007.In 2009, Shell continued to invest more with cash flow from investing activities stands at $(13,829) million in six months from $(12,275) million in 2007.(2nd quarter result s, www.shell.com)But there was less cash paid out in investing activity in 2007(-14.6 billion) as compare to 2006(-20.9 billion) and the main reason was that the proceeds from sale of asset was higher and les capital expenditure in 2007 as compare to 2006.(Shell Annual Report 2008)BP was also having strong investment with $(22.8) billion in 2008 from $(14.8) billion in 2007. The figure for 2006 was $(9.5) billion.(BP Annual Report 2008)In 2008, as Shell took more debts which results in Shells cash flow from/used in financing activities reduced to $(9.4) billion in 2008 from $(19.4) billion in 2007.As Shell acquired Canada minority interest in 2007 resulting Cash flow from financing activity increased in 2007 from (13.7) billion in 2006.There was a small increase of BPs exculpate cash flow from/ used in financing activities from (9.0) billion in 2007 to (10.5) billion in 2008 menially because of more dividends paid and less repurchase of shares in 2008. Net cash from financing activ ities was reduced to $(9.0) billion in 2007 from $(19.0) billion in 2006.(BP Annual Report 2008)Cash and Cash resembling of Shell and BP in BillionsCash and Cash equivalent of Shell reached 15.2 billion at the end of 2008, up by 57% as compare to 2007 figure of 9.6 billion. Which is good sign for Shell as there cash and cash equivalent was higher as well in 2007 as compare to 2006 figure of 9.0 billion.BPs cash and cash equivalent also increased to $8.2 billion in 2008 from $3.5 billion in 2007 and also up from 2006 level of $2.5 billion.(Shell and BP Annual Report 2008)This shows that Shell has a sound position and has no problem what so ever in cash flow compared to its rivals.c. Non-Financial AnalysisIn this section of the report I will be analyzing the corporate social responsibility and the SWOT analysis.Corporate Social function (CSR)We come that our continuing business success depends on helping to meet the worlds growing energy needs in environmentally and socially answe rable ways. To manage todays business risks and deliver our strategy, it is critical that we maintain the trust of a wide range of stakeholders.(Shell Annual Report 2008)Environmental Social performancenursery Gas Emissions In 2008 despite growing business, Shell operated facilities emitted 75 million tons of GHGs, (measured on a CO2 equivalent basis), about 7 million lower than the previous year, and nearly 30% at a lower place 1990 levels.(Shell Annual Report 2008)Flaring Since 2001, Exploration Production has reduced its inseparable gas burn up by more than 70%. In 2008, total burn up in Exploration Production dropped again mostly due to reduces combust in Malaysia and Gabon, as investment and operational improvement programs showed result. In 2008 flaring levels in Nigeria were same as in 2007.Spills Shell has reduced the touchstone of oil and oil products spilled from operations for reasons, Shell can control, like wearing away or operational failures. Spills from sabo tage or extreme weather, like hurricanes, which are harder to prevent, have fluctuated with events.In 2008 the number and amount spilled for operational reasons droppedRoyal Dutch Shell Plc Financial AnalysisRoyal Dutch Shell Plc Financial AnalysisI. INTRODUCTIONa. Topic Chosen and its contextIn this Research and Analysis project Report, I will be analyzing the financial performance of Royal Dutch Shell Plc. I will be identifying and analyzing the factors effecting the financial position of Royal Dutch Shell plc. The role of non-financial performance indicators which effects the financial position of the company will also be kept in mind. I will analyze the financial position of the company compared to its performance with previous years, with the industry and with its rival (BP). The word Shell will be used in place of Royal Dutch Shell as it is convenient. I will base my comparison on figures of audited annual accounts for the last 3 years.Financial analysis is an effective way of analyzing companys performance. Ratio Analysis is the technique, which will mainly be used for financial analysis. My analysis will also be based upon the comparison of key ratios with main rival of Shell, which will indicate some of the core strategies in seek a competitive position to achieve its purposes.I will use Life Cycle model to analyze my findings on those markets, which materially bring towards the companys financial results. Then I will use PEST analysis to analyze different stages identified and nature of Life Cycle.My conclusions will be based on current situation of the company as compared to past years and future expectations using the techniques mentioned above.b. Reasons for selectionReasons for selection of the topic and organization are as follows Wide Information base Shell, being a public limited company and one of the largest oil and gas concern in the finance sector the availability of timely, relevant, reliable information was an added advantage. Relation to my studies While studying my ACCA, one of the important skills which I have learned is the ability to analyze the financial statements, and such a comprehensive research and analysis project will definitely help in developing the same The company Other reason is the investment prospective and size of the company. The company unveiled the largest expenditure program in its history, spend $36bn in 2008 compared to $25bn last year, as it seeks new sources of oil and gas to boost reserves and production and to better exploit its existing resources.(Ft.com, July2008)Standard Poors, the credit ratings agency, downgraded its long-term rating for BP, the Oil and Gas Company, and upgraded Royal Dutch Shell, BPs closest rival, illustrating the widening perception of the two companys circumstances. SP noted Shells reserves replacement success and said current major projects should sustain its production plateau in the next decade.(Ft.com, September 2008)c. Aims and ObjectivesThe aims and objectives contains the comparison of the financial performance of the petroleum sector to assess the worth of the company in its operational industry .To get an idea about the attitude of the management towards the operations of the company by assessing the companys cash flow position compared to its profits. Also to analyze the risks faces by the company I will take in to account Solvency, Liquidity and Capital structures.d. Research ApproachACCA provides a complete guide about different sections of the report, and also this provides the opportunity to plan and think to allocate my time carefully. This planning will help me to concentrate on each section of the report so that I can focus on core and important areas of the report. This also enables me not to overspend my time in explaining any section of the report. Information mainly collected from annual reports of the company and also different sort of other sources like ACCA text books, internet, newspaper, library etc.Traditio nal ratio analysis has been used to measure and compare the financial performance of thecompany over last 3 years with its rivals.Ratio analysis will focus on the following key ratios Profitability RatiosThis ratio is the reflection of how well the business is performing in term of profits in order to pay the shareholders. Key ratios area. Gross Profit Marginb. Operating Profit Marginc. Return on Average Capital Employed Liquidity RatiosLiquidity ratio refers to the state of an assets nearness to cash to meet business short term obligations as they fell due. Key ratiosa. Current Ratiob. Quick ratio (Acid Test Ratio) Efficiency RatiosThese ratios show how efficiently the business is employing those resources invested in fixed assets and working capital. Ratios area. Debtor Daysb. Creditor Days Risk RatiosThese ratios are used to assess how healthy and sound the business is in term of capital or finances. Ratios area. Gearing Ratiob. Interest Cover Investors RatiosBoth present and pro spective shareholders look at these ratios to measure their return and to make economic decisions. Key ratios area. Earnings per Shareb. Diluted Earnings per ShareII. INFORMATION GATHERINGa. Sources of Information UsedThe information has been collected from different secondary sources for the preparation of this project. Main secondary sources which are use to gather information is as follows Annual Accounts The annual audited accounts of Shell are the main secondary source of information to use in this project. These annual audited accounts were available from stock exchange. As it supposed to be accurate and reliable thus provides me with an ideal source of annual accounts of the company. I have used only the audited annual accounts for the last three years of the company though unaudited quarterly review until July was available, to make certain that only reliable and accurate source of information is used in my research and analysis project. These audited annual accounts provid es me all the information for the last three years which is essential in computing key financial ratios and also to make a comparison with rivals and industry averages of the company.Annual accounts of the rivals for the last three years are also used to make comparison with the Shell. Financial Analysts Report They are professional people and their views are independent and their analysis helped the shareholders making economic decisions, which in turns affects the very existence of the company. Kaplans Tutorial Text Kaplans tutorial text for Bsc (Hons) in Applied Accounting also helped me a lot for gathering information and also about the different requirements of the reports. It also helped in focusing a particular section of the report and also helped in overall design of the project so that nothing is missing in the project. News Papers Getting in touch with the business section of leading newspapers like The Times, The Independent, Daily Express and The Telegraph was very usef ul as it provided me guidance on the economy overall and as well the movement in the share prices of different companies.b. Methods Used To Collect InformationTo collect information various methods are used like, Internet Internet offers a speedy and impersonal way of getting to know the basics of the services that a company provides.(BPP 2005 Paper 3.4)I visited www.shell.com to access the financial reports of the company and press releases. I also visited www.bp.com to get information about the rival company of Shell for the purpose of comparison. Also I visited www.ft.com which really helped me a lot for the up to date information about the Shell and BP. I have also visited www.wikipedia.org to get information which helped me a lot to understand the oil and gas industry. In addition I visited the www.bbc.co.uk to get the latest news and important interviews. Use of the E-mail For communication with Shell people I use to e-mail them during my research whenever I want to get some i mportant information. They responded quickly to answer my query. Library Research Libraries proved quite helpful so some libraries in London, Kaplan Financial College library and City Business Library in Moorgate London for general reading of the newspapers, journals, different books, magazines to get important information about Shell and BP. I spend most of my time in city business library, where I was able to get specific information through different CD ROMS which included different databases search designed specifically for getting information about different companies.Some of the CD ROMs are Financial Analysis Made Easy This database provided the detailed key financial data in the form of profit and loss accounts and the balance sheet. Also it helped me to get important ratios of the Shell and BP and their comparison with the preceding years in the form of graphs. Marketing and Business Information Centre (Data Monitor) This database provided vital information regarding the com pany, industry and market news for the research and analysis. This database contains records of hundreds of companies in UK and worldwide. When I looked at the Shell data, it really helped me by providing the overview and the detailed information. Then same thing was true for its rival BP.c. Limitations in the Information GatheringA number of difficulties I have faced sometime in getting the required information. For instance, I was expecting to get more information from the newspaper, but actually it was not. The newspaper only provides information about a particular date and some events but in depth information cannot be obtained and also articles are found in different newspaper i.e. nothing is new than others.Similarly when I went to City library, I was not aware of using FAME database, so when I tried to get information from database it took me too long. Moreover it only provides me the financial data in the form of graphs.Another problem which I have faced is the information o verload on the internet. Whenever I tried to search something on the net it gives me too many results which some time confused me which information I should use and which is not.d. Accounting Technique Used and LimitationsIn this report to analyze the financial performance of Shell comparing to BP ratio analysis has been used. Ratios are important tool in analyzing the financial performance of the company. Ratios are used because shareholders and potential investors are primarily concerned with receiving an adequate return on their investment.An earnings per share is a key ratio that is to be used to determine the returns on shareholders fund. Suppliers and lenders are concerned with the security of their debt or loan. So they are mainly focused on the gearing level the company is having and also the interest cover. More over management is concerned with the trend and level of profits, so ratios are the main measure of the success. Furthermore, managements bonuses are linked to the profits of the company.I have calculated the key ratios in an appendix from 2006-2008 for Shell and BP and they did analyze the results.Ratios were used as a tool to assist analysis and to focus attention systematically on important areas. Ratios summarize information in an understandable form and also helped me to identify trends and relationships.There are also limitations of financial statements and ratio analysis as they are based on the past and ratios are not predictive if they are based on historical information. Ratios ignores any future action which is or to be taken by management. Another limitation faced by ratio analysis is the fact that the ratios results may be distorted if there are differences in the accounting policies.(Kaplan Financial Study Text Paper F7)In all, Ratios have limitations but are still regarded as the best tool for analyzing the financial performance of the business and so I also used it.III. ANALYSISIn this section of the report I will explain and a nalyze the financial performance of Shell and will compare its results with BP.I will also explain Shells financial position in the current year.a. Company History The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company and the Shell Transport and Trading Company Ltd of theUnited Kingdommerged their operations. This move was largely driven by the need to compete globally with the predominant American oil company(www.wikipedia.org)b. Financial Analysis Here is the analysis of the financial data of Shell (Revenue, GP and NP) over the last three years. The revenues in 2008 were ($458.4 billion) 28.8% higher than in 2007, when they were ($355.8 billion) 11.6% higher than in 2006.(Appendix) The oil and gas prices was One of the main reasons of increase in revenues in 2008 Brent crude oil prices average $97.14 per barrel in 2008 compared with $72.45 in 2007, while West Texas Intermediate average $99.72 per barrel compared with $72.16 a year earlier. Oil prices saw great fluctuation in 2008.(Annual Report Shell 2008) A 6% increase in Gross Profit of Shell in year 2008 and 2007 as compared to gross profit in year.(Appendix) Its shows an increase in production costs in line with increase in revenues on high margin products. Earnings ($26.5 billion) were lower by 17% in 2008 compared to 2007, when they were ($31.9 billion) 21% higher than in 2006 ($26.3 billion).(Appendix)The decrease in 2008, compared with 2007, reflected the effect of declining oil prices on inventory in the second half of the year, lower production volumes, lower realised refining margins and higher operating costs. These more than offset the positive impact on earnings from higher realised oil and gas prices as well as higher LNG and GTL product prices.(Annual Report Shell 2008)Second quarter 2009 reported earnings were $3,822 million compared to earnings of $11,556 million in the same quarter a year ago.(2nd quarter results 2009, www.shell.com ) Earnings By B usiness Segments All figures in this table are in $millionThe table shows that earnings in 2008 were higher by 47% in Exploration Production, Gas Power and Oil Sands segments as compare to 2007. On other hand earnings were lower by 100% in 2008 as compare to 2007 in Oil Products, Chemicals and Corporate segments. This 100% reduction in last three segments causes overall reduction of earning in 2008.In the Second quarter Exploration Production segment earnings were $1,334 million compared to $5,881 million a year ago. Earnings compared to the second quarter 2008 reflected the impact of significantly lower oil and gas prices on revenues, lower oil and gas production volumes, higher exploration expenses and non-cash pension charges, which were partly offset by lower royalty and tax expenses.(2nd quarter results 2009, www.shell.com )Comparison of Shell with BP Revenue Growth Shell and BP revenue over the last three years is shown in the graphGrowth in Revenue in $ MillionShell and B P revenue showed a consistent growth over a period of 3 years. In 2008 Shell revenue 26.9% higher than BP. Which shows that Shell growing consistently as Shell revenue were higher 25.2% 19.9% from BP in 2007 2006 respectively.(Appendix)a. Profitability RatiosThe profitability of a company is important and a key measure of its success. The figures shown in the profit and loss account mean very little themselves. However, by expressing them as a percentage of sales they become much more useful. The figures can then be compared with previous years or with other similar companies.(Student Accountant ACCA Magazine, Christopher, 1999.)Gross Profit Margin Gross profit margin shows earning on sales of a company. In the 2nd quarter of 2009 the gross profit margin has fallen 62% compared to last years 2nd quarter results. An indication of high profit margin is that the company earned well on sales by keeping overhead cost in control. Gross profit margin of 2008 is lower than previous years.N et Profit Shell net profit margin dropped by 3.2% to 5.8% in 2008 from 9% in 2007. And margin in 2006 was 8.3%.BP net profit margin dropped by 1.5% to 5.9% in 2008 from 7.4% in 2007. The 2006 margin was 8.4%.(Appendix)Growth in Net Profit Shell and BP (%)The profit margin is mainly used as an internal comparison tool. As there are different levels of expenditure involved it is therefore sometimes difficult to accurately compare the net profit ratio for different entities. As compared to BP Shells net profit margin dropped by a higher percentage in 2008.On the other hand if we see the year 2007 the Shell profits are higher than the BP.Return on Average Capital Employed ROACE reflects the ability of the company to utilize the resources i.e. capital in generating revenue. Capital employed consists of total equity, currant debt and non-current debts. The published segment level contains the computation and calculation of the tax rate and the minority interest components. The strong inco me generation is the only reason for change in ROACE from18% to 24% between 2006 and 2008.There is a significant decrease in the capital employed from 24% to 18% in 2008 as compare to 2007. A significant decrease in income attributable to shareholders is partly offset by an increase in capital employed, resulted in a decrease in ROACE of 6.0% in 2008(18%) compared to 2007 (24%). The 2006 figure was 23%.(Appendix and Annual Report Shell 2008)ROACE is defined as the sum of the current and previous three quarters income adjusted for interest expense, after tax, divided by the average capital employed for the period. In the 2nd quarter or 2009 the ROAC stands at 8.3% way below the 25.8% in the 2nd quarter of 2008.(2nd quarter results 2009, www.shell.com )On the other hand BP utilization of its capital resources was showing a sorry picture. BP ROCE has moved in a range of 16% to 19% between 2006 and 2008. BPs ROCE was 19% in 2006, and then reduced to 16% in 2007, followed by an increase of 1% to stand at 17%. This was due to lower income attributable to shareholders in 3 years time. This increase in 2008 was due to some increase in income attributable to shareholders.(Appendix)ROCE Shell and BP (%)The drop in oil price in the second half of 2008 had a significant impact on earnings. The strengthening of the dollar against other main currencies reduced the impact of Shells investment plans on capital employed.b. Efficiency RatiosDebtor Days Shells receivable days has fallen from 76 days in 2007 to 65 days in 2008. The figure for 2006 was 68 days. This was due to the effective and better controlled credit policy.(Appendix)BP on the other hand, showed increase in its collection to 30 days in 2008 from 49 days in 2007. The 2006 figure stands at 53 days. All this reflected an aggressive and comprehensive credit control policy and ability to collect from customers.(Appendix)Creditors Days The payment to creditors from Shell showed improvement in payment to creditors in 2 008 if we compare the figures to last three years. As creditors days reduced to 78 days in 2008 from 93 days in 2007, while the figure in 2006 was 87. This improvement shows that company has liquidity to pay off its debts and also helped in making stronger relationship with creditors, which could be Suppliers, lenders.(Appendix)BPs creditors days showed reduction over a period of 3 years i.e. from 82 days in 2006 to 78 days in 2007 and more improved to 46 days in 2008 which showed a good sign for the company.(Appendix)c. Liquidity RatiosCurrent Ratio As short-term creditors prefer a high current ratio since it reduces their risk. The current ratio measures the adequacy of current assets to meet the companys short-term liabilities as they fall due. Traditionally, a current ratio of 21 or higher was regarded as appropriate for most businesses to maintain creditworthiness. However, more recently a figure of 1.51 is regarded as a norm.(Kaplan Financial, Paper F7 Study Text)Current ratio for Shell in 2008 was 1.1 and remained Constant between 2006 and 2007 to stand at 1.2. This shows better position for Shell and its ability to pay short term liabilities as they fall due.(Appendix)BP current ratio was also healthy between 2006 and 2007, but in 2008 the ratio was below 1 which may be not a good sign for short term creditors. But it was ok as for as it remains near to 1.(Appendix)One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation value. SO the quick ratio is an alternative measure of liquidity that does not include inventory in the current assets.(Paper3.6, BPP Professional Education, June 2007)Quick Ratio The quick ratio also known as the acid test ratio eliminates inventory from the currant assets. It provides the acid test of whether the company has sufficient liquid resources (receivables and cash) to settle its short term liabilities. Normal level for quick ratio ranges from 11 to 0.71.(Kaplan Financial, Paper F7 Study Text)For Shell, liquidity ratio remained unchanged within the industry standards between 2006 and 2008 to stand at 0.9. This shows the companys ability to pay short liabilities from most liquid resources i.e. receivables and cash not inventory.(Appendix)BPs quick ratio showed a sorry picture and remains unchanged on 0.7 between 2006 and 2008, as it was standing at the danger level of 0.7 meaning that BP is not having enough liquid resources to pay off the liabilities due.(Appendix)d. Risk RatiosGearing Gearing is the relationship between the companys fixed return capital and its equity capital. Gearing ratio indicates the degree of risk attached to the company and the sensitivity of earnings and dividends to change in profitability and activity level. High geared businesses uses large proportion of fixed return capital, so there are greater chances of insolvency and ultimately return to shareholders grow proportionately more i f profits are growing. While low geared businesses provide scope to increase borrowings when potential profitable projects are available and can usually grow more easily.(Kaplan Financial, Paper F7 Study Text)Gearing levels in (%) (2006-2008)Shell maintained smooth profits and more suitable assets for security in order to make use of gearing successfully. Shells gearing level increased in 2008 due to more debts taken as compared to 2006 and 2007. Gearing was 23% in 2008 compared to 17% in 2007. The gearing ratio was 15% in 2006. The increase was due to rise in the total debt.On the other hand, BP gearing level was also high standing between 36% to 28% with 36% in 2008 compare to 28% in 2006, while 2007 figure was 33%, which is higher than Shell.High level of gearing means high risk to business, but this is compensated by a significant increase in profits and the returns to the shareholders. So Shell can borrow more easily in future.Interest Cover Companys interest cover indicates th e ability to pay interest out of profits generated. Low interest cover indicates to the shareholders that their dividends are at risk (because most profits are use to pay interest payments) and the company may have difficulty financing its debts if its profits fall.(Kaplan Financial, Paper F7 Study text)Shells interest cover has decreased to 42 times in 2008 compared to 45 times in 2007. The interest covers for 2006 was 38 times. This shows Shells ability to finance its debts and the ability to pay interest out of the profits for sure. As investors are interested in the risk level the company is in, it is a healthy sign.Interest Cover in Times (2006-2008)For BP, there is an increase of interest cover to 30 times as compare to 29 times in 2007 but in 2007 there is a huge reduction in interest cover to 29 times from 49 times in 2006 which clearly indicates the inability of BP to finance its debt and to pay interest out of profits generated. That makes BP riskier than Shell for investm ent purposes.e. Investors RatiosEarnings per Share (EPS) Earnings per Share for Shell decreased in 2008 from $5 in 2007 to $4.27 in 2008. This was due to decline in profits followed by the repurchase of the shares, which causes a net decrease of 105 million in the number of ordinary shares outstanding as a result of share buybacks. As widespread the use of the EPS as a yardstick for investment decisions. Share price of company might fall if it looks as if EPS is going to be low. EPS increased to $5 in 2007 compared to $3.97 in 2006, this was due to decrease in the number of ordinary shares in 2007 as company repurchased its 112 million shares of common stock for cancellation at a gross cost of $4.4billion.this purchase reduced the number of shares outstanding to 1.7% in 2007 and by 7.3% in total since the commencement of share repurchases following the unification into Royal Dutch Shell and successful completion of Royal Dutch Minority tender (August 2005).(Annual Report Shell 2008) In the first six months of 2009 the EPS for Shell is $1.19 compared to the six month figure of $3.34 of the same period of 2009(2nd quarter results 2009, www.shell.com )Earnings Per Share in $ (2006-2008)BPs Basic Earnings per Share increased in 2008 to $1.13 from $1.09 in 2007. This was due to the appreciation in the profits followed by the repurchase of shares, which causes a net decrease of 373 million in the number o shares. Basic EPS decline by 0.01 to stands at $1.09 in 2007 compared to $1.10 in 2006. This was due to the declining of profits of BP.(BP Annual Report 2008)Diluted Earnings per Share(DEPS) Diluted Earnings Per Share attempts to alert the shareholders to the potential impact on the Earnings per Share due to change in equity share capital in future owing to circumstances which exist now-known as dilution. The most common type of dilution is an option or warrant which gives the holder right to buy shares at time in future at predetermined price.(Kaplan Financial, Pa per F7 Study Text)Diluted Earnings Per Share in $ (2006-2008)Shells DEPS reduced due to the reduction in the profits and number of shares to $4.26 in 2008 compared to $4.99 in 2007, while it was $3.95 in 2006.BPs DEPS increased to $1.12 in 2008 from $1.08 in 2007. The figure was $1.09 in 2006. The main reason for this was increase in profits despite shares in numbers was reduced.(Appendix)f. Cash Flow StatementShells cash flow from operating activities has increased by 27% reaching a record level of $43.9 billion in 2008 compared with $34.5 billion in 2007 and $31.7 billion in 2006. This improvement in cash flow from operations was a result of reduces working capital in 2008 compared to 2007. The increase in the operating activity in 2007 mainly because of increase in income as well as a reduction in taxation paid in 2007 compared to 2006.In 2009, Shells cash flow from operating activities reduced in the first two quarters to stands at $8478 million compared to $21,030 million in th e same period of 2008.(2nd quarter results 2009, www.shell.com )BPs cash flow from operation declined to $24.7 billion in 2007 compared to $28.2 billion in 2006, but the cash from operating activity increased in 2008. This is menially because of increase in income.(BP Annual Report 2008)Higher capital expenditure in 2008 compared to 2007 made Shell to use its Cash flow in investing activities i.e. $28.9 billion in 2008 compare to $14.6 Billion in 2007.In 2009, Shell continued to invest more with cash flow from investing activities stands at $(13,829) million in six months from $(12,275) million in 2007.(2nd quarter results, www.shell.com)But there was less cash paid out in investing activity in 2007(-14.6 billion) as compare to 2006(-20.9 billion) and the main reason was that the proceeds from sale of asset was higher and les capital expenditure in 2007 as compare to 2006.(Shell Annual Report 2008)BP was also having strong investment with $(22.8) billion in 2008 from $(14.8) billion in 2007. The figure for 2006 was $(9.5) billion.(BP Annual Report 2008)In 2008, as Shell took more debts which results in Shells cash flow from/used in financing activities reduced to $(9.4) billion in 2008 from $(19.4) billion in 2007.As Shell acquired Canada minority interest in 2007 resulting Cash flow from financing activity increased in 2007 from (13.7) billion in 2006.There was a small increase of BPs Net cash flow from/ used in financing activities from (9.0) billion in 2007 to (10.5) billion in 2008 menially because of more dividends paid and less repurchase of shares in 2008. Net cash from financing activities was reduced to $(9.0) billion in 2007 from $(19.0) billion in 2006.(BP Annual Report 2008)Cash and Cash Equivalent of Shell and BP in BillionsCash and Cash equivalent of Shell reached 15.2 billion at the end of 2008, up by 57% as compare to 2007 figure of 9.6 billion. Which is good sign for Shell as there cash and cash equivalent was higher as well in 2007 as compare to 2006 figure of 9.0 billion.BPs cash and cash equivalent also increased to $8.2 billion in 2008 from $3.5 billion in 2007 and also up from 2006 level of $2.5 billion.(Shell and BP Annual Report 2008)This shows that Shell has a sound position and has no problem what so ever in cash flow compared to its rivals.c. Non-Financial AnalysisIn this section of the report I will be analyzing the corporate social responsibility and the SWOT analysis.Corporate Social Responsibility (CSR)We recognise that our continuing business success depends on helping to meet the worlds growing energy needs in environmentally and socially responsible ways. To manage todays business risks and deliver our strategy, it is critical that we maintain the trust of a wide range of stakeholders.(Shell Annual Report 2008)Environmental Social performanceGreenhouse Gas Emissions In 2008 despite growing business, Shell operated facilities emitted 75 million tons of GHGs, (measured on a CO2 equivalent basis), about 7 million lower than the previous year, and nearly 30% below 1990 levels.(Shell Annual Report 2008)Flaring Since 2001, Exploration Production has reduced its natural gas flaring by more than 70%. In 2008, total flaring in Exploration Production dropped again mostly due to reduces flaring in Malaysia and Gabon, as investment and operational improvement programs showed result. In 2008 flaring levels in Nigeria were same as in 2007.Spills Shell has reduced the amount of oil and oil products spilled from operations for reasons, Shell can control, like corrosion or operational failures. Spills from sabotage or extreme weather, like hurricanes, which are harder to prevent, have fluctuated with events.In 2008 the number and amount spilled for operational reasons dropped