Shell’s Upstream Segment Recovered in 3Q16


Nov. 3 2016, Published 11:15 a.m. ET

Shell’s Segments

Before starting Royal Dutch Shell’s (RDS.A) segmental review, it’s important to review segments’ numbers from previous quarters. Shell’s Upstream segment’s earnings, which stood at -$582 million in 3Q15, rose to a profit of ~$4 million in 3Q16, excluding the identified items discussed in Part 1 of this series.

The rise in the Upstream segment’s earnings is due to higher production from the BG Group acquisition. Liquids production rose 25% YoY (year-over-year) and natural production rose 15% YoY in 3Q16. Also, lower operating expenses and reduced tax costs bolstered the earnings. It was partially offset by lower crude oil and natural gas prices and higher depreciation costs. Brent prices, which averaged $51 per barrel in 3Q15, fell to $46 per barrel in 3Q16.

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Shell’s Integrated Gas and Downstream segments

Shell’s Integrated Gas segment reported a 1% rise in its earnings from 3Q15 to $931 million in 3Q16. It rose due to a fall in LNG (liquefied natural gas) prices and a rise in depreciation and operating costs due to the BG acquisition. It was partly offset by higher LNG and liquids production volumes mainly contributed by BG. Shell’s Downstream segment’s earnings fell 21% from 3Q15 to $2.1 billion in 3Q16 due to a weaker refining environment.

Although earnings from the Integrated Gas and Downstream segments fell, they contributed a major portion of Shell’s 3Q16 earnings.

Shell’s peers

Shell’s peers ExxonMobil (XOM), Total SA (TOT), and Suncor Energy (SU) saw their contribution from segmental earnings change. ExxonMobil’s Upstream segment contributed 32% of its total earnings in 3Q15. It fell to 23% in 3Q16. Also, Total’s net adjusted operating earnings from the Upstream segment fell 21% from 3Q15 to $0.88 billion in 3Q16. Suncor’s Oil Sands segment posted operating losses until 2Q16. It turned profitable in 3Q16.

If you’re looking for exposure to energy sector stocks, you can consider the Energy Select Sector SPDR ETF (XLE).


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