Despite the recent share price rally in London's two super majors, the last week has served as a useful reminder that oil prices have so far been unsustainable in 2016. If anything, Royal Dutch Shell (RDSB) appears to have been hit harder than rival BP, as half-year results showed a 65 per cent drop in net income to $2.6bn (£1.98bn), after adjusting for expenses.
This missed consensus analyst estimates, knocking 3 per cent off the shares, and came despite four-and-a-half-months' worth of production from the assets added in the takeover of BG. This caused a 28 per cent boost in volumes to 3.5m barrels of oil equivalent a day in the second quarter, although a $649m net charge in the upstream division due to redundancy and restructuring costs weighed heavily on earnings.
The most worrying effect was on operating cash flow, which contracted sharply to $3bn, from $13.2bn in the first six months of 2015. On the other side of the ledger (and excluding the BG deal), Shell found itself committed to $11bn in capital expenditure, $4.8bn in dividends and $1.3bn in interest payments in the period, a picture management knows is clearly unsustainable. In response, chief executive Ben van Beurden has pledged to bring capital investment down to $29bn and asset disposals up to $8bn by the year-end.
JPMorgan expects adjusted EPS of $1.13 in 2016, against $1.67 in 2015.
ROYAL DUTCH SHELL (RDSB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,034p | MARKET VALUE: | £162bn | |
| TOUCH: | 2,033-2,035p | 12-MONTH HIGH: | 2,158p | LOW: 1,262p |
| DIVIDEND YIELD: | 7.0% | PE RATIO: | 90 | |
| NET ASSET VALUE: | 2,362¢* | NET DEBT: | 39% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2015 | 138 | 11.4 | 1.34 | 94.0 |
| 2016 | 107 | 0.32 | 0.22 | 94.0 |
| % change | -23 | -97 | -84 | - |
Ex-div: 11 Aug Payment: 19 Sep £1=$1.32 *Reflects both 'A' and 'B' shares | ||||
