Personal Finance

Royal Dutch Shell Couldn't Capitalize on Rising Oil Prices in the Second Quarter

Rds Earnings
Rds Earnings

Image source: Royal Dutch Shell, author's chart.

On the cash front, Shell's results were better, but not by much. The company generated $2.2 billion in cash for the quarter, and that came nowhere close to meeting its quarterly capital expenditures of $5.8 billion. Investors can perhaps forgive weaker results since the company's realized natural gas prices slipped a bit in the quarter, but it has been touting cost-cutting that just doesn't seem to be flowing to the bottom line. To cover the cash shortfall, it issued $9.7 billion in new debt, and its debt-to-capital ratio of 28.1% is starting to reach the top of its target range.

From the mouth of management

In spite of the results, CEO Ben Van Beurden continued to toe the company line about lowering costs and working through the integration of BG Group:

We are managing the company through the down-cycle by reducing costs, by delivering on lower and more predictable investment levels, executing our asset sales plans and starting up profitable new projects. At the same time, integration of Shell and BG is making strong progress, and our operating performance continues to further improve.We are making significant and lasting changes to Shell's working practices and cost structure. Shell is firmly on track to deliver a $40 billion underlying operating cost run rate at the end of 2016.Looking through the cycle, our investment plans and portfolio actions are focused firmly on reshaping Shell into a world-class investment case through stronger, sustained and growing free cash flow per share.

What a Fool believes

In Shell's defense, it's way too early to say if the BG Group acquisition is a stud or a dud. It still has a lot of work to do in bringing the two operating companies together under a common platform and identify some places where it can either trim the fat or beef up operations. Based on this initial result, though, things aren't looking great. Oil prices did rise in the quarter, yet Shell's upstream business generated even deeper losses. Investors should certainly give the company more time to work through this transformation, but we're going to have to start to see some form of improvement in the coming quarters.

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Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.comor on Twitter @TylerCroweFool.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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