Royal Dutch Shell’s second-quarter profit slumped to a 30-month low on weaker fuel prices and refining margins, denting a steady recovery in recent years and sending the Anglo-Dutch energy company’s shares down over 5%.
The results missed analyst forecasts by a wide margin and triggered the biggest one-day fall in Shell shares in over three years. Shell joins rivals Total and Norway’s Equinor in reporting weak results for the quarter while BP reported stronger-than-expected profit.
Shell’s performance fell short of expectations across the board but was most pronounced at its flagship liquefied natural gas (LNG) unit. The company also blamed a weaker global economic and trade environment for hurting its chemicals business.
“The general macro (environment) at this point in time, of course, is not supportive in a number of areas,” CEO Ben van Beurden told reporters.
Trade tensions between the US China are having “quite a dramatic reaction” on the petrochemical sector as demand for plastics in the world’s two largest economies sags, he added. A rise in cash generation — a sign of improving operations —was the one bright spot in the company’s results. Net income attributable to shareholders in the quarter, based on current cost of supplies and excluding identified items, dropped 25% to $3.6bn (€3.2bn) from a year ago, the lowest since the end of 2016.
Shell’s debt pile rose to $66.5bn by mid-year, underscoring the strain from its dividend programme — the world’s largest at over $15bn — and $25bn share buyback programme. “This set of earnings is weaker than most were looking for and were below expectations in all the main divisions,” Morgan Stanley analyst Martijn Rats said.
Shell’s LNG division, known as Integrated Gas, struggled the most, hurt by $479m in impairment charges in Trinidad and Tobago and Australia as well as lower sales and weaker prices. Asian LNG spot prices have more than halved since the start of the year, weighed down by soaring new production. But chief financial officer Jessica Uhl said Shell, the world’s top LNG trader, continues to forecast a strong long-term outlook for the market as demand picks up.
Oil and gas production in the quarter rose 4% from a year earlier to 3.58m barrels of oil equivalent per day, but was down from 3.442m boed in the first quarter of 2019. Free cash flow — cash available to pay for dividends and share buybacks — dropped to $6.9bn.