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A Look at Shell’s Stock in 4Q15 Prior to Its Earnings Release

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Shell’s stock performance

In 2015, Royal Dutch Shell’s (RDS.A) stock fell. Shell’s stock lost 38% in the trailing twelve months to January 26, 2016. During the same period, Shell’s peers ExxonMobil (XOM), Chevron (CVX), and BP (BP) lost 16%, 23%, and 23%, respectively. The iShares Russell 1000 Value ETF (IWD) has ~12% exposure to energy sector stocks, including XOM and CVX.

Shell made a series of strategic moves in early October 2015, such as rescheduling and halting projects, selling assets, ceasing exploration activity in high-cost areas, and cutting operating costs. During that period, Shell’s stock price surged. However, this was followed by weak 3Q15 numbers. After results were released, the stock resumed its downfall again.

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Currently, it’s time to keep a close watch on Shell, as the shareholders of Shell and BG Group are preparing themselves to vote this week on the proposed merger. According to Shell, the merged entity is expected to gain from the creation of synergies, to the tune of $2.5–3.5 billion. This will be followed by the release of the fourth quarter’s numbers on February 4, 2016.

Shell’s capex, costs, and restructuring plans

In 2015, Royal Dutch Shell (RDS.A) was expected to incur capex of $30 billion, the bulk of which was put towards upstream projects. In the first nine months of 2015, Shell incurred $21 billion capex. The remaining capex was likely incurred in 4Q15. For 2016, Shell-BG’s combined capex is expected to be around $35 billion.

Shell is restructuring its business portfolio by retaining only competitive projects. Many projects have been delayed, rephased, or canceled. Shell is focusing on cost optimization by cutting overheads across the supply chain and downsizing its workforce.

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