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Shell’s Earnings Positively Surprise Wall Street


Oct. 31 2019, Updated 8:27 a.m. ET

Royal Dutch Shell’s (RDS.A) earnings positively surprised Wall Street by posting a lower-than-expected decline. Shell’s earnings, on an adjusted basis, slumped 15% YoY (year-over-year) to $4.9 billion. This is a lot lower than analysts’ estimated fall of 26%. Notably, Shell’s earnings rose in integrated gas and downstream segments. Shell stock could be positively impacted by its better-than-expected third-quarter results.

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Shell released its third-quarter results on October 31. Shell’s earnings per ADS, on an adjusted basis, stood at $1.18, which beat analysts’ estimate of $0.99. Plus, Shell’s revenues at $86.6 billion beat analysts’ estimate of $73.7 billion in the third quarter. In the previous quarter, the company saw its earnings touch a two-year low and miss the forecast.

Shell’s earnings review

The company’s earnings fell due to a decline in its upstream earnings. This was partially offset by a rise in integrated gas and downstream earnings.

Shell’s integrated gas earnings rose 17% YoY to $2.7 billion due to higher production and stronger trading activity. The segment’s hydrocarbon production rose 4% YoY due to higher production in Australia and Trinidad and Tobago. However, the earnings were partially offset by lower oil and gas and LNG (liquefied natural gas) realizations.

Further, Shell’s earnings upstream fell 52% YoY to $0.9 billion. This was due to lower realization and weaker volumes. Shell’s upstream production fell 2% YoY due to divestments, natural declines, weak operational performance, and high maintenance activity.

Shell’s global liquid and natural gas realizations fell by 18% YoY and 15% YoY in the quarter. The company’s total hydrocarbon production fell by 0.9% to 3.56 million barrels of oil equivalent per day.

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However, Shell’s downstream earnings rose 7% YoY to $2.2 billion due to better oil products (refining & trading and marketing) earnings partly offset by weaker chemical earnings. Shell’s refining & trading and marketing earnings rose YoY by 6% and 41%, respectively. However, chemical earnings shrunk by 58%. While higher trading activities and wider fuel marketing margins raised the oil product earnings, thinner chemical margins and volumes hit the chemical earnings.

Shell declares dividend and next buyback tranche

In the third quarter, Shell will pay a dividend of $0.94 per ADS on December 18. Shell’s dividend payment stayed flat YoY in the third quarter.

Further, Shell announced the next tranche of its share buyback program. The company expects to buy a maximum of around 718 million shares. In the previous tranches, Shell bought back about 390 million shares worth $12 billion between July 26, 2018, and October 17, 2019. Shell plans to buy back $25 billion shares till the end of 2020.

Peers’ performances

BP’s (BP) earnings declined by 41% YoY but beat analysts estimate. BP’s earnings fell across its segments, namely Upstream, Downstream, and Rosneft, in the quarter. To learn more, read BP’s Q3 Earnings Slump but Beat the Estimate.

Analysts expect ExxonMobil (XOM) and Chevron’s (CVX) EPS to fall YoY by 54% and 31%, respectively, in the quarter. Both companies could see the impact of lower oil prices on their upstream earnings. But Chevron’s surging upstream volumes could partly offset the effect of lower prices.


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