Europe’s largest oil company Royal Dutch Shell plc RDS.A reported fourth-quarter earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of 74 cents, below the Zacks Consensus Estimate of 80 cents and the year-ago profit of $1.38. The underperformance mainly stemmed from lower oil and gas prices.
The Hague-based Shell reported revenues of $85.1 billion, which were 19% below the fourth-quarter 2018 sales of $104.6 billion.
Meanwhile, Shell will repurchase $1 billion worth of shares up to Apr 27 in the seventh installment of its three-year $25 billion buyback program.
Royal Dutch Shell PLC Price, Consensus and EPS Surprise
Upstream: Upstream segment recorded a profit of $778 million (excluding items) during the quarter, down 59% from the $1.9 billion (adjusted) achieved in the year-ago period. This primarily reflects the impact of unfavorable deferred tax adjustments, lower oil and gas prices, increase in redevelopment and the decommissioning costs, plus write off of wells in Albania.
Shell’s upstream volumes averaged 2,813 thousand oil-equivalent barrels per day/MBOE/d (63% liquids), essentially unchanged from the year-ago period as ramp-ups of existing operations was offset by asset sales and normal field declines. Liquids production totaled 1,773 thousand barrels per day (up 6% year over year), while natural gas output came in at 6,027 million standard cubic feet per day (down 9%).
At $56.60 per barrel, the group’s worldwide realized liquids prices were 5% below the year-earlier levels while natural gas prices were down 23%.
Downstream: In the downstream segment – focused on refining, marketing and retailing – the Anglo-Dutch super-major reported adjusted income of $1.4 billion, 36% less than the year-ago period. The negative comparison was due to lower refining margins. Refinery availability came in at 93%, down 1% from the December quarter of 2018. Oil products sales volumes and chemical sales volumes fell 7% and 16% from the year-ago period, respectively.
Integrated Gas: The Integrated Gas unit reported adjusted income of $2 billion, down 16% from the $2.4 billion in October-December quarter of 2018. Results were primarily impacted by lower commodity prices and higher operating expenses. Meanwhile, the total Integrated Gas production decreased by 3% year over year to 950 MBOE/d. On a positive note, LNG liquefaction volumes were up 5% from the fourth quarter of 2018 to 9.21 million tons.
As of Dec 31, 2019, the Zacks Rank #2 (Buy) company had $18.1 billion in cash and $96.4 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 29.3%, up from 20.3% a year ago. The deterioration in the group’s debt ratio was partly due to the adoption of IFRS 16 accounting standard.
During the quarter under review, Shell generated cash flow from operations of $10.3 billion, returned $3.7 billion to shareholders through dividends and spent $8 billion on capital projects.
The company’s cash flow from operations slumped 53% from the year-earlier level. Meanwhile, the group raked in $5.4 billion in free cash flow during the fourth quarter, down from $16.7 billion a year ago. Moreover, it was not sufficient enough to take care of its $2.75 billion in share buybacks and its $3.7 billion dividend.
Shell, which delivered on its $30 billion divestment target for 2016-2018, expects first quarter 2020 upstream volumes to be 2,625 - 2,775 MBOE/d, while Integrated Gas production is expected to be between 950 MBOE/d and 980 MBOE/d. Finally, the company expects full-year 2020 capital budget to revolve around the lower range of the $24-$29 billion band. Shell also announced a further $10 billion of divestments expected during the 2019-2020 period.
Proved Reserves Update
As of year-end 2019, the group had approximately 11.1 billion oil equivalent barrels in proved reserves – about 500 million barrels decrease compared to 2018. But excluding production and asset sales, last year’s reserve additions amounted to 2.3 billion oil equivalent barrels. The reserve replacement ratio for 2019 was 76%, however, the 3-year ratio was at a slightly better 90%.
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