On July 28, 2016, Royal Dutch Shell released its 2nd quarter results and 2nd quarter interim dividend announcement for 2016. The results were much worse than market expectations.
On a current cost of supplies basis, Shell’s 2Q 2016 earnings were $239 mln, a drop of 93% from $3.361 bln in the 1st quarter of 2015.
Shell’s profits fell by 72% dropping to $1.05 bln down from $3.76 bln in the 2nd quarter of 2015. They also missed expectations by a large margin – analysts had predicted earnings of $2.16 bln.
«This is a very big surprise from Shell,» Brendan Warn, a managing director at BMO Capital Markets, told Bloomberg. «Things are not looking up in the third quarter either, with weakness in the industry’s refining environment and Shell’s oil production still under pressure.»
Shell explained that, compared with the second quarter 2015, current cost of supplies earnings attributable to shareholders excluding identified items were impacted by the decline in oil, gas and LNG prices, the depreciation step-up resulting from the BG acquisition, weaker refining industry conditions, and increased taxation. Earnings benefited from increased production volumes from BG assets.
During the quarter, Shell’s capital investment was $6.3 bln.
Oil and gas production in 2Q 2016 was 3.508 mln barrels of oil equivalent per day, an increase of 28% compared with the second quarter 2015. The impact of BG on the second quarter 2016 production was an increase of 768 thousand boe/d.
Shell’s CEO Ben van Beurden, who in 2016 completed Shell's record purchase of BG Group, said: «Lower oil prices continue to be a significant challenge across the business... 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.»