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How Have Shell’s Segment Dynamics Evolved?

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Dec. 4 2020, Updated 10:53 a.m. ET

Shell’s segment dynamics

Royal Dutch Shell’s (RDS.A) segment dynamics are changing due to volatility in oil prices.

Before beginning with a segment-by-segment review, it’s imperative to note that Shell’s previous quarters’ segments and numbers have been restated. This is due to a change in segmental reporting and the definition of “identified items” by Shell, effective from 2016 onward.

Shell’s upstream segment earnings, which were -$195 million in 1Q15, fell further to -$1.4 billion in 1Q16, excluding identified items.

This fall came on the back of falling crude oil and natural gas prices, and it was partly offset by lower operating and exploration costs and higher liquids production volumes. Brent prices, which averaged $54 per barrel in 1Q15, fell to $34 per barrel in 1Q16.

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Shell’s integrated gas and downstream segment earnings

Shell’s integrated gas segment reported a 33% fall in earnings over 1Q15 to $994 million in 1Q16. This was on account of lower liquefied natural gas (or LNG) prices and the Malaysia LNG Dua JVA expiry, and it was partly offset by higher volumes on account of the contribution from BG Group.

Plus, Shell’s downstream segment’s earnings fell by 24% over 1Q15 to $2 billion in 1Q16 on account of a weaker refining environment.

Though earnings from Shell’s integrated gas and downstream segment fell, they contributed a major portion of its 1Q16 earnings.

Shell’s peers

Shell’s peers have also seen their segment dynamics change. Total S.A.’s (TOT) upstream segment, which contributed 48% of its overall adjusted earnings in 1Q15, contributed 26% in 1Q16. Suncor Energy (SU) and BP (BP) also reported losses in their upstream segments in 1Q16.

ExxonMobil’s (XOM) upstream segment, which contributed 58% of its total earnings in 1Q15, turned into a loss-making segment in 1Q16.

If you’re looking for exposure to the integrated energy sector, you can consider the iShares North American Natural Resources ETF (IGE). The ETF has ~22% exposure to the sector.

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