Slowing economy leaves Shell profits tumbling
Royal Dutch Shell has got caught in the same earnings trap as many of its peers, reporting second-quarter earnings that fell well short of expectations, as the slowing global economy hit everything from natural gas to chemicals.
Profit in Shell's integrated gas division was down by 25pc, but earnings were lower across all of its businesses, including upstream oil and gas production, and refining and chemicals.
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"We've seen some very severe macroeconomic headwinds - probably most pronounced in our downstream business where we saw some weaker refining margins - but especially a much weaker trading environment for petrochemicals," chief executive Ben van Beurden said in a Bloomberg TV interview.
"In our upstream, we've seen headwinds particularly in North American gas."
The Anglo-Dutch company is far more focused on natural gas than its peers, accounting for about a quarter of all the world's traded liquefied natural gas volumes annually. While this division has helped generate record levels of cash at Shell in recent quarters, a global oversupply has caused prices to slump.
Shell is the last big oil company in Europe to report earnings this quarter, rounding out a generally weaker picture for the industry. Eni, Total and Equinor reported lower-than-expected profits due to falling energy prices, although BP surpassed even the highest analyst estimate as its production jumped.
Shell's adjusted net income was $3.46bn (€3.13bn), down 26pc from a year earlier, well below even the lowest analyst estimate. That marks the biggest earnings miss since 2016, according to data compiled by Bloomberg, and comes after a quarter in which Shell comfortably exceeded expectations, underscoring the recent volatility in the company's earnings.
"All in all, a pretty weak set of numbers across the board," RBC analyst Biraj Borkhataria said in a note.
"Given the strong share price performance recently, we would expect Shell to underperform the peer group in the near term."
Shares in the company fell 4.3pc to 2,490.5 pence in morning trading in London yesterday, the biggest drop this year.
Despite the big profit miss, cashflow from operations - a measure of financial performance closely watched by analysts - was actually up 16pc from a year earlier, to $11.03bn.
The figure was buoyed by a positive $600m working capital movement. Total oil and gas output increased 4pc.