Back to top

Analyst Blog

Europe’s largest oil company Royal Dutch Shell plc (RDS.A - Analyst Report) reported weak second quarter 2013 results on the back of high costs, supply disruptions in Nigeria and lower refining margins, partially offset by elevated natural gas prices.

The Hague-based Shell, which follows continental rival BP plc (BP - Analyst Report) in coming out with lower-than-expected profits, reported earnings per ADR (on a current cost of supplies basis) – excluding one-time items and gains or losses from inventories – of $1.46. This was well below the Zacks Consensus Estimate of $1.87 and the year-ago adjusted earnings per ADR of $1.83.

Shell’s revenues were also down 3.8% to $112.7 billion.

Segmental Performance

Upstream: Upstream segment earnings during the quarter (excluding items) were $3.5 billion, down 22.1% from $4.5 billion (adjusted) earned in the year-ago period.

This primarily reflects the impact of lower liquids realizations, higher depreciation and exploration expenses, increased operating costs, the tax effect of a depreciating Australian currency, together with output disruptions in Nigeria. These factors were partly offset by higher sales price of gas, ramp-up of the Pearl gas-to-liquids (GTL) development in Qatar, and dividend from a liquefied natural gas (LNG) project.

Shell’s upstream volumes averaged 3.1 million oil-equivalent barrels per day (MMBOE/d), down 1.3% from the year-ago period. Natural gas volumes rose 4.7%, while crude oil output was down 6.8% from the corresponding period last year. Crude oil contributed approximately 49% of Shell’s total volumes, while natural gas accounted for the rest.

Production during the quarter compared with the year-ago quarter included volumes from new field start-ups and the continued ramp-up of existing fields, which boosted output by roughly 190 MBOE/d.

Shell’s worldwide realized liquids prices were 9% below the year-earlier level, while natural gas realizations increased by 17%. In particular, natural gas prices in North America jumped 90% from the last year’s level.

LNG equity sales volumes of 4.68 million tons were up 2% from the year-ago quarter, as contribution from the Pluto LNG development in Australia was partially offset by lower output from Nigeria LNG.

Downstream: In the Downstream segment, the Anglo-Dutch super-major recorded a profit (excluding items) of $1.2 billion as against $1.3 billion in the year-ago period. The negative comparison reflects the impacts of lower refining profitability, deteriorating oil product sales volumes and softer Chemical earnings.

To some extent, these factors were offset by solid marketing and trading contributions.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $12.4 billion, returned $4.7 billion to shareholders through dividends/share buybacks and spent $11.3 billion on capital projects.

Balance Sheet

As of Jun 30, 2013, Shell had $12.5 billion in cash and $33.0 billion in debt (including short-term debt). Net debt-to-capitalization ratio stood at approximately 10.3%.

Zacks Rank & Stock Picks

Royal Dutch Shell currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months

Meanwhile, one can look at Range Resources Corp. (RRC - Analyst Report) and Clayton Williams Energy Inc. (CWEI - Snapshot Report) as a good buying opportunity. These North American energy explorers – sporting a Zacks Rank #1 (Strong Buy) – offer tremendous value and are worth buying now.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%