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How Are Shell’s Segmental Dynamics Shaping Up?

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Shell’s segmental dynamics

Before beginning with Royal Dutch Shell’s (RDS.A) segmental review, we should mention its previous quarters’ numbers. 

Shell’s Upstream segment’s earnings, which stood at -$582 million in 3Q15, turned to a profit of ~$4 million in 3Q16, excluding identified items.

The rise in Shell’s Upstream earnings resulted from higher production due to the company’s BG Group acquisition. Its liquids production rose 25% YoY (year-over-year), and its natural production rose 15% YoY in the Upstream segment in 3Q16.

Lower operating expenses and reduced tax costs further bolstered the company’s earnings, but this was partially offset by lower crude oil and natural gas prices and higher depreciation costs. Brent crude prices, which averaged $51 per barrel in 3Q15, slipped down to $46 per barrel in 3Q16.

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Shell’s Integrated Gas and Downstream segments’ 3Q16 earnings

Shell’s Integrated Gas segment reported a 1% rise in its earnings over 3Q15 to $931 million in 3Q16. This rise was due to a fall in LNG (liquefied natural gas) prices and a rise in depreciation and operating costs due to Shell’s BG acquisition. The rise was partly offset by higher LNG and liquids production volumes, which were mainly supplied by BG. Shell’s Downstream segment’s earnings also fell 21% over 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 (TOT), and Suncor Energy (SU) also saw the earnings contributions from their segments change. ExxonMobil’s Upstream segment, which contributed 32% of its total earnings in 3Q15, saw its earnings fall to 23% in 3Q16. Total’s net adjusted operating earnings in its Upstream segment fell 21% from 3Q15 to $0.88 billion in 3Q16. However, Suncor’s Oil Sands segment, which had been posting operating losses up to 2Q16, 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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