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Has Shell Created an Integrated Earnings Model?

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May. 16 2019, Published 10:26 a.m. ET

Shell’s adjusted earnings fell

In the first quarter, Royal Dutch Shell’s (RDS.A) adjusted profit fell 2% YoY (year-over-year) to $5.4 billion. The fall was led by an increase in corporate expenses due to lower tax credits. However, the earnings from the upstream, integrated gas, and downstream segments rose in the first quarter.

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Upstream and integrated gas earnings

Shell’s upstream segment’s earnings rose from $1.6 billion in the first quarter of 2018 to $1.7 billion in the first quarter on an adjusted basis. The upstream segment’s earnings rose due to better volumes. The rise was partially offset by lower liquid realizations. The segment, which contributed only 28% to Shell’s overall earnings in the first quarter of 2018, added 32% to its total earnings in the first quarter.

Shell’s integrated gas segment’s earnings rose 5% from the first quarter of 2018 to $2.6 billion in the first quarter. The earnings rose was due to higher gas and LNG realizations. The rise was partly offset by lower volumes. The integrated gas segment’s contribution to total Shell’s earnings rose from 44% in the first quarter of 2018 to 47% in the first quarter.

Downstream earnings

Shell’s downstream segment’s earnings rose 3% from the first quarter of 2018 to $1.8 billion in the first quarter. The earnings rose due to stronger refining and trading and marketing earnings. The rise was partially offset by weaker chemical earnings. The downstream earnings’ contribution rose from 32% to 34%.

Shell’s segmental dynamics changed in the first quarter. The dynamics changed due to strength in the company’s integrated earnings model. The upstream and integrated earnings rose despite lower oil prices. The downstream earnings continued to support Shell’s total earnings.

Overall, Shell’s earnings mix shows that the company has successfully built an integrated earnings model. The model can keep the earnings at all of the price points in an oil cycle—a favorable situation for the company.

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