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MarketScreener Homepage  >  Equities  >  Euronext Amsterdam  >  Royal Dutch Shell plc    RDSA   GB00B03MLX29

ROYAL DUTCH SHELL PLC

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Shell Swings to Historic Loss as Pandemic Devastates Oil Demand -- Update

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07/30/2020 | 08:29am EDT

By Sarah McFarlane

Royal Dutch Shell PLC swung to its first quarterly loss since its formation over a decade ago and warned that the outlook for oil-and-gas demand continued to be uncertain, illustrating the scale of damage Covid-19 is wreaking on the industry.

The pandemic has decimated demand for oil, hitting prices hard. When around two-thirds of the world's population was in lockdown in early April, global oil demand fell by a third, according to the International Energy Agency.

That led Shell to report Thursday a second-quarter loss on a net current-cost-of-supplies basis -- a figure similar to the net income that U.S. oil companies report -- of $18.4 billion. That compares to a profit of $3 billion in the comparable period last year and is the company's first loss since the third quarter of 2015.

The Anglo-Dutch company's performance was partly hit by it writing down the value of its assets by $22 billion before tax, as flagged in June, reflecting expectations of lower energy prices.

About half the charge was attributed to its gas business -- mainly its Australian liquefied natural gas projects. It also wrote down the value of two shale assets in North America and offshore assets in Brazil, Europe, Nigeria and the Gulf of Mexico.

Shell warned that the uncertain outlook for oil and gas demand could curtail its production in the third quarter, as well as activity at its refineries and chemicals plants. It also said its LNG business would suffer a greater impact from lower oil prices in the third quarter because of the time lag for price moves reaching oil-linked LNG contracts.

Benchmark Brent oil prices averaged $29.60 a barrel between April and June, down 57% from the comparable period a year earlier. Brent traded at $43.78 a barrel Thursday.

"There remains continued significant uncertainty in terms of how the pandemic will play out, we're seeing a lot of starting and stopping around the world, that impacts our assets, our supply chains," said Jessica Uhl, Shell's chief financial officer.

The company is restructuring to become simpler, leaner and more focused, Ms. Uhl said, without elaborating on whether this could result in Shell selling any businesses. Efforts to reduce costs include a voluntary redundancy program, although the company didn't say how many roles could be cut. Shell employs around 83,000 people.

"A major overhaul is required, working out what's core and noncore, in the context of whether they want to be in all markets or exit some businesses," said Christyan Malek, an analyst at JP Morgan.

French energy company Total SA also reported a quarterly loss Thursday, but said it would maintain its dividend. Its earnings came a day after it wrote down the value of its assets by $8.1 billion because of lower oil price expectations. Still, Total said that while its European gas stations saw a 30% fall in demand for petroleum products in the quarter, by June it had rebounded to 90% of precrisis levels.

Both Shell and Total noted the strength of their trading activities, which can make money even when energy prices are lower by taking advantage of price volatility. Ms. Uhl said it was one of Shell's best trading performances on record.

The two European companies are the first of the five major oil companies to detail the damage the pandemic has inflicted during the second quarter.

U.S. giants Exxon Mobil Corp. and Chevron Corp. are expected to report quarterly losses Friday, with Exxon warning recently that it faced steep losses in its refining and production businesses.

Oil companies have taken swift action to shore up their finances since coronavirus struck, including cutting costs and reducing staff. Shell has been among the most aggressive, deciding in April to cut its dividend for the first time since World War II to avoid having to borrow to fund it.

The company said that as its earnings recover it would look to increase dividends, expand investment to enable growth and reduce debt.

Shell said Thursday that its gearing level -- net debt as a percentage of total capital -- rose to around 33%, above the company's target of 25%. In April Shell's gearing was 29%. Higher gearing can raise the cost of borrowing for a company.

Both Exxon and Chevron have said they are committed to not cutting dividends, but have taken on more debt this year. Analysts expect BP PLC to cut its payout to shareholders when it reports earnings Tuesday.

Shell's shares traded down 2.7% on Thursday.

Christopher M. Matthews

contributed to this article.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

 

Corrections & Amplifications

This item was corrected at 3:29 p.m. ET to show that Shell last reported a loss in the third quarter of 2015. An earlier version incorrectly said it hadn't reported a loss since the company was unified in 2005.

Stocks mentioned in the article
ChangeLast1st jan.
BP PLC 1.22% 311.3 Delayed Quote.-34.79%
CHEVRON CORPORATION 0.81% 90.38 Delayed Quote.-25.63%
EURO / BRAZILIAN REAL (EUR/BRL) 2.24% 6.4721 Delayed Quote.42.80%
EXXON MOBIL CORPORATION -0.61% 43.8499 Delayed Quote.-35.55%
LONDON BRENT OIL 1.93% 45.38 Delayed Quote.-31.89%
ROYAL DUTCH SHELL PLC 1.77% 14.01 Delayed Quote.-47.39%
WTI 2.59% 42.625 Delayed Quote.-31.52%
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Financials (USD)
Sales 2020 234 B - -
Net income 2020 -5 990 M - -
Net Debt 2020 74 593 M - -
P/E ratio 2020 80,9x
Yield 2020 3,96%
Capitalization 122 B 123 B -
EV / Sales 2020 0,84x
EV / Sales 2021 0,67x
Nbr of Employees 83 000
Free-Float 99,8%
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Technical analysis trends ROYAL DUTCH SHELL PLC
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Income Statement Evolution
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Mean consensus HOLD
Number of Analysts 13
Average target price 21,05 $
Last Close Price 16,16 $
Spread / Highest target 110%
Spread / Average Target 30,3%
Spread / Lowest Target -41,3%
EPS Revisions
Managers
NameTitle
Bernardus Cornelis Adriana Margriet van Beurden Chief Executive Officer & Executive Director
Charles Otis Holliday Chairman
Jessica Rodgers Uhl Chief Financial Officer & Director
Harry Brekelmans Director-Technology & Projects
Gerard Johannes Kleisterlee Deputy Chairman
Sector and Competitors
1st jan.Capitalization (M$)
ROYAL DUTCH SHELL PLC-47.39%122 688
SAUDI ARABIAN OIL COMPANY-5.53%1 774 912
PETROCHINA COMPANY LIMITED-30.18%111 129
TOTAL SE-30.51%105 786
GAZPROM-25.25%62 082
PETRÓLEO BRASILEIRO S.A. - PETROBRAS-23.53%56 390