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Royal Dutch Shell, Europe's largest oil company reported weaker than expected second quarter results Thursday. $RDS.A fell near 5%, their biggest one-day fall since January 2016.Shell’s integrated gas division performed the worst, earnings down 25% year on year.

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Royal Dutch Shell-A (NYSE: $RDS.A) Missed Earnings Forecasts Before Open Thursday

$0.84 Missed Expected $1.23 EPS But $90.5B Beat  $84.1 Billion Revenue Forecast

Earnings

Royal Dutch Shell plc RDS.A reported earnings for the June quarter of $3.5bn on a current cost of supply basis, down from $4.7bn reported in the same period a year ago and missing analysts’ consensus estimates of $4.9bn.

Shell’s earnings per ADS, on an adjusted basis, were $0.84 missing analysts’ estimate of $1.23. However, Shell’s revenues at $90.5 billion beat analysts’ estimate of $84.1 billion in the second quarter.vShell’s integrated gas division performed the worst, earnings fell 25 per cent year on year. Profits across its businesses fell, including exploration and production, refining and chemicals.

Royal Dutch Shell plc (ADR) ADR Class A NYSE: $RDS.A

Market Reaction > $62.88 ▼ 4.47 (-7.10%)

Highlights

Ben van Beurden, Shell’s chief executive, said Shell generated good cash flow despite “earnings volatility” within “challenging macroeconomic conditions”.

Upstream Segment

  • Shell’s upstream earnings fell 8% YoY due to lower price realization, though higher volumes partly offset the fall. Shell’s upstream production rose 7% YoY due to higher production from North American assets and asset transfer.
  • Total oil and gas production rose 4 per cent from the second quarter of 2018, to 3.6m barrels of oil equivalent a day, following the start-up of the giant Appomattox deepwater oilfield in the Gulf of Mexico.
  • Operational issues such as underperforming oil wells in the Gulf of Mexico, maintenance in a chemicals facility in the Netherlands and “unplanned downtime” at a plant in Singapore all impacted Shell.
  • The results showed refining and chemicals margins were exceptionally weak in Asia.

Downstream Segment

The company’s downstream earnings fell 19% YoY due to a loss in the refining and trading segment and a 76% YoY decline in chemical earnings. While lower refining margins in the US Gulf Coast and Europe impacted the refining earnings, weaker chemical margins and volumes hit the chemical earnings. Shell’s marketing earnings rose 24% YoY in the second quarter due to higher retail margins which helped results.

Integrated Gas Segment

Shell’s integrated gas division performed the worst, with earnings falling 25 per cent year on year due to lower natural gas, liquefied natural gas, and liquids realizations. The segment’s hydrocarbon production fell 3% YoY due to divestments and the transfer of Salym assets to the upstream segment.

Cash Flow, Buybacks and Dividends

Cash flow from operations rose to $11bn from $9.5bn in the same quarter a year ago. Free cash flow dropped from $9.5bn to $6.9bn.as Shell has in recent months picked up the pace of the $25bn buyback programme, promised after it acquired BG Group for $54bn in 2016. The share repurchases will amount to nearly $2.8bn in the next quarter

Shell reported a second-quarter dividend of 47 cents a share.

 In recent years Shell has cut costs and sold $30bn in assets to shrink its debt overhang, after the BG deal. Still the company has debt gearing of 28% of  its equity capital . Over the target of 25 per cent by 2020, using the new accounting standards

Shell bought back $9.25 billion shares between July 26, 2018, and July 29, 2019. Shell plans to buy back $25 billion shares until the end of 2020.

About Royal Dutch Shell

What Analysts Will Be Watching

Analysts will be looking for updates on segments such as BG Group Plcs oil projects in Brazil and LNG in Australia. With the BGG price tag  excessive being bought at the oil price preak it and impact on Shell borrowing's, cost cutting and its sell off of assets and folllowed by cutting spending it is always at the top of the list. 

Updates on the Forties pipeline in the North Sea and the Enchilada platform in the Gulf of Mexico (50-60,000 boepd) are ongoing updates.  Look to see if any upstream decline is offset by the two new fields, Gorgon and Schiehallion, and expansion in Brazil.

Earnings are expected to benefit from rising LNG contract prices, stronger ‘spot’ markets and trading activity. These results clearly show the effect when that doesn't happen.

Source: Royal Dutch Shell

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