Shell Profit Misses as Slowing Economy Hurts Gas, Chemicals
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Royal Dutch Shell Plc got caught into the same earnings trap as many of its peers, reporting second-quarter earnings that fell well short of expectations as the slowing global economy hit everything from natural gas to chemicals.
Profit in Shells integrated gas division was down by 25%, but earnings were lower across all of its businesses, including upstream oil and gas production, and refining and chemicals.
Weve seen some very severe macroeconomic headwinds probably most pronounced in our downstream business where we saw some weaker refining margins but especially a much weaker trading environment for petrochemicals, CEO Ben Van Beurden said in a Bloomberg TV interview Aug. 1. In our upstream, weve seen headwinds particularly in North American gas.
The Anglo-Dutch company is far more focused on natural gas than its peers, accounting for about a quarter of all the worlds traded liquefied natural gas volumes annually. While this division has helped generate record levels of cash at Shell in recent quarters, a global oversupply has caused prices to slump.
Shell is the last big oil company in Europe to report earnings this quarter, rounding out a generally weaker picture for the industry. Eni SpA, Total SA and Equinor ASA reported lower-than-expected profit due to falling energy prices, although BP Plc surpassed even the highest analyst estimate as its production jumped.
Shells adjusted net income was $3.46 billion, down 26% from a year earlier, well below even the lowest analyst estimate. Thats the biggest earnings miss since 2016, according to data compiled by Bloomberg, and comes after a quarter in which Shell comfortably exceeded expectations, underscoring the recent volatility in the companys earnings.
All in all, a pretty weak set of numbers across the board, RBC analyst Biraj Borkhataria said in a note. Given the strong share price performance recently, we would expect Shell to underperform the peer group in the near term.
Shares of the company fell 4.3% to 2,490.5 pence in London on Aug. 1, the biggest drop this year.
Despite the big profit miss, cash flow from operations a measure of financial performance closely watched by analysts was actually up 16% from a year earlier to $11.03 billion. The figure was buoyed by a positive $600 million working capital movement.
Total oil and gas output increased 4% to 3.58 million barrels of oil equivalent a day. In the quarter, Shell started up the massive Appomattox deepwater oil field in the Gulf of Mexico, a key project thats been almost a decade in the making. It gave the go-ahead for the facility in 2015 after slashing costs following an oil price crash.
