Shell’s Second Quarter Earnings Result

The Royal Dutch Shell reported its second-quarter earnings result on Thursday. The oil company saw a sharp drop in net profit for the three-month period which ended in June.

The last three months have been one of unexpected turmoil for the oil and gas industry, as demand for oil products dramatically decreased, causing oil prices to drop to their lowest.

For the second quarter of 2020, the oil giant reported adjusted earnings of $638 million compared to a net profit of $3.5 billion over the same period a year ago. In the first three months of 2020 Shell had a profit of $2.9 billion.

“If you look at the quarter, we had, actually, a pretty credible quarter. So, of course, the $16.8 billion of impairments stands out but that is a special effect. If you look at $600 million earnings or, more importantly, the $6.5 billion of cash flow, that shows that actually, the company has a lot of operational strength,” said Shell CEO Ben van Beurden. “So, in that sense, I am very pleased that we have weathered what was probably the most difficult quarter in the living memory very well.”

The Anglo-Dutch company earlier warned that it would likely incur aggregate post-tax impairment charges within the range of $15 billion to $22 billion over the three-month period.

According to Shell, its second-quarter showed a weaker-than-expected commodity prices, very low refining margins and oil product sales, as well as higher wells write-offs compared to the same period a year ago.

“It is, of course, a non-cash measure and it is reflective of how we see the environment going forward but yes, in the sense that we needed to do a review of our balance sheet, we are done,” van Beurden said. “But, of course, we are not done yet with the pandemic so we will have to see what the coming quarters and years will bring us.”  

Analysts rightly predicted a poor turnout for the oil industry following the recent occurrences in the industry caused by the impacts of the coronavirus pandemic. Poor second-quarter results were inevitable following the lockdown and sharp drop in oil demand.

“Inevitable, the biggest talking point in this morning’s results from Royal Dutch Shell is the huge loss the company has incurred—largely as a result of revised pricing,” wrote Stuart Lamont, investing manager at Brewin Dolphin, in an email to CNBC. “The pandemic’s influence is likely to remain far-reaching, with Shell saying it may still need to curtail or reduce production later in the year to mitigate lack of demand—and indication that there may still be more pain  to come.”