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Royal Dutch Shell's (RDS.A) Q2 Earnings Hit by Low Oil Price
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Europe’s largest oil company Royal Dutch Shell plc reported dismal second-quarter results amid continued weakness in commodity prices, depressed refining margins and costly integration of the BG acquisition. The sole bright spot for the company was higher production – due largely to the BG assets.
With its underperformance, Shell joins integrated peer BP plc (BP - Free Report) in being weighed down by weak oil and gas prices to report earnings miss. U.S. supermajor Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) are scheduled to come up with second quarter numbers tomorrow.
The Hague-based Shell reported earnings per ADs (on a current cost of supplies basis) of 6 cents, well below the Zacks Consensus Estimate of 53 cents and nowhere near the year-ago adjusted profit of $1.06.
Revenues were down 19% to $58,415 million and also missed the Zacks Consensus Estimate of $65,464 million.
Upstream: Upstream segment recorded a loss of $1,325 million (excluding items) during the quarter, significantly wider than the $469 million (adjusted) loss in the year-ago period.
This primarily reflects the impact of sharply lower oil and gas prices and depreciation charges associated with the BG takeover. To some extent, this was offset by a rise in production, reduced costs and decline in exploration expenses.
Shell’s upstream volumes averaged 2,628 thousand oil-equivalent barrels per day (MBOE/d), 24% higher than the year-ago period. While crude oil production increased 24%, natural gas output was up 23% - thanks to the contribution from BG Group that was acquired earlier in the year. Liquids contributed approximately 58% to Shell’s total volumes, while natural gas accounted for the remaining portion.
Production during the quarter compared with the year-ago quarter included volumes from new field start-ups and continued ramp-up of existing fields – particularly Erha North ph2 in Nigeria and the Corrib gas field in Ireland – that boosted output by roughly 53 MBOE/d.
Shell’s worldwide realized liquids prices were 29% below the year-earlier levels, while natural gas prices were down 28%.
Downstream: In the Downstream segment, the Anglo-Dutch super-major reported adjusted income of $1,816 million, 39% less than the $2,961 million earned in the year-ago period. The negative comparison reflects the impacts of weaker results from refining and chemical operations, together with higher tax outgo partly offset by lower costs.
Integrated Gas: The Integrated Gas unit reported adjusted income of $868 million as against $1,403 million in Apr-Jun quarter of 2015. Results were weighed down by sharply lower oil and LNG prices and plus BG-related expenses. Partly offsetting these factors were improved LNG and liquids output – mainly contributed by the BG assets.
Cash Flow
During the quarter under review, Shell generated cash flow from operations of $2,292 million, returned $3,700 million to shareholders through dividends and spent $6,300 million on capital projects.
Balance Sheet
As of Jun 30, 2016, this Zacks Rank #3 (Hold) company had $15,222 million in cash and $90,329 million in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 28.1%.
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Royal Dutch Shell's (RDS.A) Q2 Earnings Hit by Low Oil Price
Europe’s largest oil company Royal Dutch Shell plc reported dismal second-quarter results amid continued weakness in commodity prices, depressed refining margins and costly integration of the BG acquisition. The sole bright spot for the company was higher production – due largely to the BG assets.
With its underperformance, Shell joins integrated peer BP plc (BP - Free Report) in being weighed down by weak oil and gas prices to report earnings miss. U.S. supermajor Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) are scheduled to come up with second quarter numbers tomorrow.
The Hague-based Shell reported earnings per ADs (on a current cost of supplies basis) of 6 cents, well below the Zacks Consensus Estimate of 53 cents and nowhere near the year-ago adjusted profit of $1.06.
Revenues were down 19% to $58,415 million and also missed the Zacks Consensus Estimate of $65,464 million.
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Segmental Performance
Upstream: Upstream segment recorded a loss of $1,325 million (excluding items) during the quarter, significantly wider than the $469 million (adjusted) loss in the year-ago period.
This primarily reflects the impact of sharply lower oil and gas prices and depreciation charges associated with the BG takeover. To some extent, this was offset by a rise in production, reduced costs and decline in exploration expenses.
Shell’s upstream volumes averaged 2,628 thousand oil-equivalent barrels per day (MBOE/d), 24% higher than the year-ago period. While crude oil production increased 24%, natural gas output was up 23% - thanks to the contribution from BG Group that was acquired earlier in the year. Liquids contributed approximately 58% to Shell’s total volumes, while natural gas accounted for the remaining portion.
Production during the quarter compared with the year-ago quarter included volumes from new field start-ups and continued ramp-up of existing fields – particularly Erha North ph2 in Nigeria and the Corrib gas field in Ireland – that boosted output by roughly 53 MBOE/d.
Shell’s worldwide realized liquids prices were 29% below the year-earlier levels, while natural gas prices were down 28%.
Downstream: In the Downstream segment, the Anglo-Dutch super-major reported adjusted income of $1,816 million, 39% less than the $2,961 million earned in the year-ago period. The negative comparison reflects the impacts of weaker results from refining and chemical operations, together with higher tax outgo partly offset by lower costs.
Integrated Gas: The Integrated Gas unit reported adjusted income of $868 million as against $1,403 million in Apr-Jun quarter of 2015. Results were weighed down by sharply lower oil and LNG prices and plus BG-related expenses. Partly offsetting these factors were improved LNG and liquids output – mainly contributed by the BG assets.
Cash Flow
During the quarter under review, Shell generated cash flow from operations of $2,292 million, returned $3,700 million to shareholders through dividends and spent $6,300 million on capital projects.
Balance Sheet
As of Jun 30, 2016, this Zacks Rank #3 (Hold) company had $15,222 million in cash and $90,329 million in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 28.1%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>