The first of Big Oil corporations reported Q4 and full-year 2019 results on Thursday, and the financials Royal Dutch Shell (NYSE:RDS.A) released doesn’t bode well for the rest of the oil majors expected to report later this week and next
Shell’s fourth-quarter profit tumbled by 48 percent, and while it had already warned of an impairment charge in Q4, the results were even more underwhelming and below analyst expectations.
Shell’s current cost of supplies (CCS) earnings attributable to shareholders and excluding identified items slumped to $2.9 billion in Q4 from $4.767 billion in the same period of 2018, reflecting lower realized oil, gas, and liquefied natural gas (LNG) prices, and weaker realized refining and chemicals margins, the supermajor said on Thursday.
Fourth quarter-identified items primarily reflected a charge of $1.647 billion related to impairments, mainly in unconventional gas assets in the U.S., Shell said.
Full-year 2019 earnings also slipped, by 23 percent to $16.462 billion. Shell’s cash flow from operating activities also shrunk, both in Q4 and in the full year, due to lower inflows related to commodity derivatives and lower cash earnings.
Shell attributed the lower earnings and cash flows to “challenging macroeconomic conditions in refining and chemicals, as well as lower oil and gas prices.”
More telling for Shell’s more careful approach was the announcement of the next tranche of the $25-billion share buyback which continues, but at a slower pace. The next tranche will see Shell buy back shares up to $1 billion, lower than the previous tranches in which the oil major spent up to $2.75 billion every quarter since July 2018.
Due to the depressed macroeconomic environment, Shell may see the target to complete the whole share buyback program slip beyond the current end-2020 deadline, CEO Ben van Beurden told Bloomberg in an interview.
“If we don’t see a recovery in the macro, yes, we will see $25 billion slipping into a later period,” van Beurden said.
Commenting on Shell’s results, Richard Hunter, Head of Markets at Interactive Investor, said:
“The weakness in oil and gas prices is, of course, a major contributor, while the general macro environment remains a serious challenge.”
After the results release, Shell’s shares in New York were down nearly 4 percent at 10:20 a.m. EDT on Thursday.
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By Tsvetana Paraskova for Oilprice.com
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The first is because the EIA’s aspirations are based on many “IFs” including developing shale oil deposits with little history of production.
The second reason is the deteriorating health of US shale oil production. Moreover, US oil production is overstated by a minimum of 2 million barrels a day (mbd). This means that US production averaged 10.2 mbd in 2019 and not 12.2 mbd as the EIA claimed and is projected to average below 10 mbd in 2020.
In 2020 the United States is projected to need to import 11.49 mbd of crude oil to cover its needs based on a projected consumption of 21.49 mbd and a production of 10 mbd. Offsetting its imports of crude oil against exports of 5.5 mbd of refined products leaves it with a deficit of 5.99 mbd.
Moreover, the claim by the EIA that US production will continue growing until at least 2025, reaching 14 mbd after which it would plateau and stay flat until about 2045 is pure hype, wishful thinking and self-delusion. US shale oil will be no more in 4-9 years from now.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London