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Royal Dutch Shell PLC ADR Class A RDS.A

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Economic Moat




Shell’s Q2 Earnings Fall Sharply Even as Strong Trading Results Help Soften Impact of Lower Prices

Allen Good, CFA Sector Strategist

Analyst Note

| Allen Good, CFA |

Shell reported that second-quarter adjusted earnings fell to $638 million from $3.5 billion a year ago. The decline was largely the result of the decline in demand from the global COVID-19 pandemic and accompanying fall in commodity prices and product margins. The adjusted figure excludes $16.8 billion in post-tax impairment charges Shell previously warned about, which are the result of a reduction in internal appraisal price assumptions due the fallout from the pandemic. Including those charges, second-quarter earnings fell to a loss of $18.1 billion from earnings of $3.0 billion last year. The impairments are noncash charges and do not affect our valuation. Shell’s updated long-term price assumption now matches our midcycle assumption of $60 per barrel used in our valuations. We plan to incorporate the latest results into our model but do not anticipate a material change in our fair value estimate or narrow moat rating. Assuming a recovery in oil prices toward our midcycle price assumption, Shell’s shares are undervalued.

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Company Profile

Business Description

Royal Dutch Shell is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2019, it produced 2.0 million barrels of liquids and 11.4 billion cubic feet of natural gas per day. At year-end 2019, reserves stood at 11.1 billion barrels of oil equivalent (including equity companies), 37% of which consisted of liquids. Its production and reserves are in Europe, Asia, Oceania, Africa, and North and South America. The company operates refineries with capacity of 2.9 mmb/d located in the Americas, Asia, Africa, and Europe and sells 18 mtpa of chemicals. Its largest chemical plants, often integrated with its local refineries, are in Central Europe, China, Singapore, and North America.

Carel van Bylandtlaan 30
The Hague, 2596 HR, United Kingdom
T +31 703779111
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 83,000