Higher Price Realization & Lower Costs Boost Shell’s 2Q’18 Results

by Trefis Team
Royal Dutch Shell Plc.
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Royal Dutch Shell (NYSE:RDS.A), the European integrated energy company, reported a strong improvement in its June quarter financial performance, driven by higher price realization for its upstream operations. Further, the company’s efforts to reduce its operating costs and capital spending are likely to boost its bottom-line for the year. Going forward, Shell will continue to focus on the delivery of its new projects, which are likely to drive its value in the long term.

We have a price estimate of $67 per share for Royal Dutch Shell, which is in line with its current market price. View our interactive dashboard on Shell and modify the key drivers to visualize their impact on its valuation.

Key Highlights of 2Q’18 Results

  • Shell’s upstream production grew by 2% (excluding asset sales). This, coupled with higher price realizations, caused the company’s upstream revenue to rise over 29% to $2.3 billion. Further, the Integrated Gas operations saw a rise in its LNG sales due to increased volumes from the Gorgon LNG project.
  • Shell has completed asset sales of $27 billion since 2016, has announced another $3 billion, and has about $4 billion in the pipeline. This has put the company on track to achieve its divestment target of $30 billion by the end of 2018.
  • Shell plans to restrict its annual capital investment to $25-$30 billion over the next three to four years. In case the commodity prices recover faster than expected, the company plans to cap its investments at $30 billion and use the excess cash flows to accelerate its debt reduction.
  • The company announced two major discoveries in the Gulf of Mexico – Whale and Dover. Also, the company was successful in the recent bidding rounds in Brazil, Mexico, and Mauritania.
  • Further, the company announced its share repurchase program of $25 billion, to be completed by 2020, subject to the progress of company’s debt reduction program and the overall recovery in oil prices. While Shell will be able to repurchase shares only after it has met its debt reduction and dividend payment requirements, the company’s willingness to utilize its surplus cash flows to reinstate its share repurchase program is a positive one for its shareholders.
  • Shell has a robust portfolio of projects that have either become operational or are expected to come on-stream soon. These new projects are expected to produce more than 1 million barrels of oil equivalent per day, and contribute $10 billion in cash flows by end of 2018 and $15 billion by end of 2020. The company highlighted that it is on track to achieve these targets.

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