Shell’s 3Q’17 Earnings Could Disappoint The Market

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RDSA: Royal Dutch Shell logo
RDSA
Royal Dutch Shell

Royal Dutch Shell (NYSE:RDS.A), the European integrated energy company, is slated to post its September quarter 2017 earnings on 2nd November 2017((Royal Dutch Shell To Announces September Quarter 2017 Results, 13th October 2017, www.shell.com)). The market expects the company to report a solid improvement in its revenue as well as earnings on an annual basis as the production volumes and price realizations are likely to be much higher compared to the previous year. However, the company’s results might suffer on a sequential basis due to the disruption of operations due to Hurricane Harvey during the quarter. We will keep a close watch on the company’s progress regarding its capital efficiency improvements, cost reduction measures, delivery of new projects, and success of divestment program.

We have a price estimate of $59 per share for Royal Dutch Shell, which is slightly lower than its current market price.

See Our Complete Analysis On Royal Dutch Shell Here

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Key Trends Witnessed In 3Q’17

  • Commodity prices remained volatile in the last three months due to the impact of various hurricanes and storms along the US coastline. Despite this, the WTI crude oil prices averaged  $48.18 per barrel for the September quarter, very similar to the previous quarter. With no significant improvement in commodity prices, Shell’s upstream 3Q’17 revenues are highly dependent on its production volumes.
  • During the quarter, Shell sold its upstream interest (45%) in the Corrib gas venture in Ireland for a sum of $1.23 billion. The venture produces roughly 27,000 barrels of oil equivalent per day (boed) as part of Shell’s share. With the closure of the transaction expected in 2Q’18, the company will exit its upstream operations in Ireland.

  • On the operational front, Shell announced that its Gbaran-Ubie Phase 2 Project in Nigeria’s Niger Delta region has commenced production. The project, which began in June 2010, is expected to reach peak production of around 175,000 boed by 2019. Since Shell owns 30% interest in the project and is the key operator, it is likely to benefit from the ramp up of production from the project.
  • Further, Shell has recently won three, 35-year production sharing contracts (PSC) for pre-salt blocks located in the Santos Basin, offshore Brazil for which the company will pay a total signing bonus of $100 million. The winning bids will enhance the company’s existing acreage in the adjacent area and enable it to improve its production results. Apart from this deal, the company has plans to invest $10 billion in the development of offshore production in Brazil by 2020. If the company continues to expand its presence in Brazil at the current pace, it will have a strong upside from this market in the long term.

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