uploads/2018/09/Earnings-mix-1.jpg

What Shell’s Earnings Mix Indicates

By

Updated

Shell’s changing earnings mix

In the second quarter, Royal Dutch Shell’s (RDS.A) adjusted profit rose 30.0% YoY to $4.8 billion. This was due to the rise in its upstream and integrated gas earnings, partially offset by the fall in downstream earnings. Let’s see how its segmental earnings mix has changed.

Shell’s Upstream segment, which contributed only 9.0% to its overall earnings in the second quarter of 2017, has contributed 30.0% to its overall earnings in the second quarter. Its Integrated Gas segment’s contribution to total earnings has risen from 31.0% in the second quarter of 2017 to 48.0% in the second quarter.

Shell’s downstream earnings, which supported its overall earnings with 68.0% contribution in the second quarter of 2017, contributed only 34.0% in the second quarter. Corporate expenses dented its earnings by 13.0% in the second quarter.

Shell’s overall earnings mix has changed. This trend resulted from a higher oil price environment, which increased Shell’s upstream and integrated gas earnings. However, in a lower oil price environment, its downstream earnings had supported Shell’s overall earnings.

Overall, Shell’s earnings mix suggests that the company has successfully created an integrated earnings model capable of supporting earnings at all price points in an oil cycle–favorable situation for the company.

Article continues below advertisement

Shell’s Q2 segmental earnings details

Shell’s adjusted upstream earnings rose from $0.3 billion in the second quarter of 2017 to $1.5 billion in the second quarter, primarily due to the rise in crude oil realizations. Brent prices, which averaged $50 per barrel in the second quarter of 2017, surged to $74 per barrel in the second quarter. However, hydrocarbon production fell 7.0% YoY in the second quarter due to divestments.

Shell’s Integrated Gas earnings doubled over the second quarter of 2017 to $2.3 billion in the second quarter. This was due to an increase in volumes and better realizations.

Shell’s Downstream segment’s earnings fell 34.0% over the second quarter of 2017 to $1.7 billion in the second quarter. This was due to weaker refining and chemical earnings.

Advertisement

More From Market Realist