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Dutch Shell reported weaker than expected second quarter results Thursday with lower downstream input. $RDS.A, the first big oil earnings to report announced they will increase buybacks to at least $25 billion in stock.


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

$1.12 Analysts Missed $1.39 EPS on $99.268 billion in revenue 

Earnings

Shell reported earnings per ADS (on a current cost of supplies basis, excluding items of $1.12, below consensus estimate of $1.41 but above the year-ago profit of 88 cents. Revenues of $99,268 million were 37% above the second-quarter 2017 sales of $72,702 million. Operating expenses increased in the quarter to $10,006 million, compared to $9,548 million in the corresponding period last year.

 

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

Market Reaction > Pre-market 68.04 −2.30 (-3.27%)

Highlights

"Today we are taking another important step towards the delivery of our world-class investment case..." CEO Ben van Beurden said. "Our financial framework remains unchanged. Our free cash flow outlook and the progress we have made to strengthen our balance sheet give us the confidence to start our share buyback program."

Segment Performance

Upstream:

  • Upstream segment recorded a profit of $1,457 million (excluding items) during the quarter, up from $339 million (adjusted) in the year-ago period. This primarily reflects the impact of higher oil realizations. At $66.09 per barrel, the group’s worldwide realized liquids prices were 45% above the year-earlier levels.
  • Apart from pricing, results were also buoyed by lower depreciation and operating costs.
  • Asset sales reduced its oil and gas production.
  • Shell’s upstream volumes averaged 2,488 thousand oil-equivalent barrels per day (MBOE/d), 7% lower than the year-ago period.
  • Liquids contributed approximately 61% to Shell’s total volumes, while natural gas accounted for the remaining portion.

Downstream:

  • Downstream segment focuses on refining, marketing and retailing reported adjusted income of $1,660 million, 34% less than the $2,529 million earned in the year-ago period.
  • The negative comparison reflects the impact of higher operating costs, foreign currency translation effects and lower trading contributions.

Integrated Gas:

  • The Integrated Gas unit reported adjusted income of $2,305 million, almost doubling from the $1,169 million in April-June quarter of 2017.
  • Results were favorably impacted by increase in commodity prices, higher LNG production, as well as increased contributions from trading.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $9,500 million, returned $3,900 million to shareholders through dividends and spent $5,771 million on capital projects. 

Shell said its $30 billion divestment program is now almost complete, with $27 billion in completed deals and more than $7 billion announced or in advanced progress. The company's debt gearing at the end of Q2 2018 was 23.6%, down from 25.8% at the end of Q2 2017.

Shell has already aborted its two-and-a half-year long scrip dividend program as cost-containment efforts and divestment strategies have paid off. Importantly, the group raked in $9,529 million in free cash flow during the second quarter.

 

Royal Dutch Shell Q2 Earnings Preview 

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.

2017 was a good year for oil companies with growth in WTI crude prices aided their margins, and Royal Dutch Shell in particular benefited from its massive divestments. In  2018, the WTI crude oil price reached $75 a huge jump from the 2017 average. This should bode well for the company’s upstream operations in Q2 2018, and the company’s $5 billion annual divestment target will further aid its overall performance.

 

Shell said to consider bid for Italian solar company

Bloomberg reported yesterday that Shell is weighing a bid for the Italian solar company RTR, owned by Terra Firma Capital, the PE fund run by Guy Hands.

Shell is reportedly preparing to submit an offer with a partner. Terra Firma started a sale process in March, and valued RTR at EUR1.5bn. RTR has also attracted attention from Italian energy companies Enel, Erg, and A2A and a range of international companies. 

Source: Royal Dutch Shell

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