How Are Shell’s Q4 Earnings Prospects by Segment?


Jan. 15 2019, Updated 5:00 p.m. ET

Shell’s earnings performance

Let’s analyze Royal Dutch Shell’s (RDS.A) earnings performance by segment in the third quarter of 2018 and then move on to its fourth-quarter earnings expectations.

Shell’s adjusted Upstream profits more than tripled YoY (year-over-year) to $1.9 billion in the third quarter of 2018, mainly led by higher oil prices. Also, Shell’s Integrated Gas earnings rose 79% YoY to $2.3 billion in the third quarter due to better realizations partly offset by lower volumes. However, Shell’s Downstream earnings fell 25% YoY to $2.0 billion in the quarter due to weaker earnings in its refining and trading, marketing, and chemical businesses.

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Shell’s peers BP’s (BP) and Total’s (TOT) Upstream earnings also rose sharply in the third quarter. BP’s Upstream adjusted EBIT rose 156% YoY to $4.0 billion. Total’s exploration and production earnings more than doubled YoY to $2.9 billion in the quarter from $1.4 billion in the third quarter of 2017.

Shell’s fourth-quarter outlook by segment

Shell’s Upstream realizations are expected to improve in the fourth quarter. Though oil prices fell in the quarter, their quarterly average was still higher YoY. Brent and WTI prices, which stood at $61 per barrel and $55 per barrel, respectively, in the fourth quarter of 2017, rose to $69 per barrel and $59 per barrel, respectively, in the fourth quarter of 2018. Usually, with all else being equal, the rise in crude oil prices suggests a likely increase in Shell’s Upstream earnings in the fourth quarter, assuming there’s no fall in volumes YoY.

However, earnings from Shell’s Downstream segment are likely to fall, as cracks narrowed in the quarter compared to the fourth quarter of 2017. For instance, the US Gulf Coast WTI 3-2-1, the benchmark crack, narrowed 19% YoY to $15 per barrel in the fourth quarter of 2018.


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