Shell To Report Another Good Quarter Despite Volatility In Commodity Markets
Royal Dutch Shell (NYSE:RDS.A), the European integrated energy company, is set to post strong improvement in its June quarter 2017 earnings on 27th July 2017((Royal Dutch Shell Announces June Quarter 2017 Results, 29th June 2017, www.shell.com)). While the rally in commodity prices subsided in the second quarter due to growing US oil production and inventories, commodity prices are notably higher compared to the same quarter of last year. Consequently, we believe that Shell’s upstream price realization, and in turn 2Q’17 revenue, is likely to be higher on a year-on-year basis. Further, the company continued to reshape itself and concentrate on its growth priorities — deepwater and LNG businesses. We expect the company’s efforts to pay off in the long run as these growth priorities are expected to form a crucial part of its future value.
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Key Highlights of 2Q’17
- Shell announced the first deep-water production from its FPSO P-66, located in the Brazilian pre-salt of the Santos Basin. The P-66 can process up to 150,000-barrels of oil and 6 million cubic meters of natural gas per day, and is the first in the series of standardized vessels that will be operating in the Lula field. As part of Shell’s deep-water strategy, the company will continue to invest in projects with competitive break-even prices to further enhance its position as Brazil’s second largest oil producer.
- Shell, along with four European companies, has signed a financing agreement with Nord Stream 2 AG to provide financing and guarantees for up to 10% of the total cost of the Nord Stream 2 pipeline. The pipeline, which is proposed to be 1,220 kilometers in length, is expected to have a capacity to transport 55 billion cubic meters of natural gas a year, with an estimated project cost of around €9.5 billion. With this investment, Shell is progressing towards its efforts to promote the use of natural gas and augment its growing presence in the LNG space.
Source: Google Finance; US Energy Information Administration (EIA)
- Apart from expanding its operations in its growth areas, the company also completed the previously announced asset sales of all its in-situ and undeveloped oil sands interests in Canada and reduce its share in the Athabasca Oil Sands Project (AOSP) from 60% to 10%. The transactions is estimated to result in a post-tax impairment charge of $0.4 billion in the June quarter. While the company has divested its oil sand assets in Canada, it continues to hold a significant portion of its upstream shale and downstream operations in the region.
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