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Shell’s Second-Quarter Earnings Rose but Still Missed Estimates

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Dec. 4 2020, Updated 10:52 a.m. ET

Shell’s second-quarter upstream earnings

Royal Dutch Shell (RDS.A) reported its Q2 2018 earnings on July 26. The company’s earnings missed estimates, which we discussed in Shell’s Q2 2018 Earnings Missed Analysts’ Estimates. Now, let’s look at Shell’s segmental earnings performance.

Shell’s Upstream segment earnings rose almost fourfold from $0.3 billion in Q2 2017 to $1.5 billion in Q2 2018 on an adjusted basis. The Upstream earnings rose steeply due to the surge in crude oil realizations. Brent prices, which averaged $50 per barrel in Q2 2017, surged to $74 per barrel in Q2 2018.

However, hydrocarbon production fell 7% YoY in Q2 2018 due to divestments. Liquids production fell by 7% YoY, and natural gas production also fell by 6% YoY in Q2 2018. If we exclude divestments, then the production rose by 2% YoY in Q2 2018.

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Other segments’ earnings in Q2 2018

Shell’s Integrated Gas earnings doubled to $2.3 billion in Q2 2018 compared to Q2 2017. This was due to an increase in volumes and better realizations. In Q2 2018, total production volumes rose by 16% YoY due to Pearl GTL. However, Shell’s Downstream segment’s earnings fell by 34% over Q2 2017 to $1.7 billion in Q2 2018. This was due to weaker refining and chemical earnings. Refining earnings fell due to lower trading volumes and an unfavorable foreign exchange impact. Further, chemical earnings declined due to weaker underlying cracker margins and increased feedstock prices.

Shell’s peers

Shell’s peers ExxonMobil (XOM), BP (BP), and Chevron (CVX) are also expected to see higher segmental earnings in Q2 2018 over Q2 2017.  XOM, BP, and CVX are expected to witness a rise in their upstream earnings due to higher oil prices. Also, downstream earnings could improve as suggested by the rise in the benchmark crack, USGC WTI 3-2-1 crack, assuming no decline in volumes.

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