Royal Dutch Shell plc (ADR) and BP plc (ADR): How they are …
Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) and BP plc. (ADR) (NYSE:BP) have had a pretty rough 2015. Crude oil prices have remained depressed throughout last year. The final blow to the crude oil prices came at the end of the year, when the Organization of Petroleum Exporting Countries (OPEC) decided to increase production quota to 31.5 million barrels of oil per day. The last year has been eventful for both Shell and BP. Shell finalized its deal with BG Group (ADR) (OTCMKTS:BRGYY), while the US announced the Gulf of Mexico oil spill penalty for BP. Shell finalized a merger deal with BP for $70 billion in April, representing a 50% premium. Meanwhile, a compromise with the US Department of Justice (DoJ) was finally reached at $20.8 billion penalty. When Shell initially decided to go ahead with the deal, crude levels were far higher. The deal looked lucrative at that time, but with current crude levels, one wonders if the BG is worth the massive premium that Shell is willing to pay.
During Asian trading on Tuesday, the US benchmark for crude oil, West Texas Intermediate (WTI) was down 0.14% at $36.71 per barrel, while the global benchmark for crude oil, Brent Crude was down 0.35% at $37.09 per barrel. An immediate rebound in crude oil prices is unlikely. Iran is likely to flood the market with its exports. Moreover, demand for the commodity is likely to remain grim. On Monday, China s manufacturing data came in weaker than expected and put in further pressure on oil prices. The scenario is likely to remain the same this year as well.
Shell, BP Revenues and Profits: Historical and Future Outlook
As mentioned above crude oil prices have adversely impacted sales and profitability at the European oil and gas majors. Bidness Etc takes a look at the last-year performance of both companies and tells what analysts expect them to report in the future.
Shell s performance has been quite decent in the last year. The company managed to beat the consensus estimates for adjusted EPS in two out of the three quarters. Moreover, the company also managed to beat the revenue expectations in the preceding quarter. However, what concerned most was the monumental decline in revenues and EPS. In 3QFY15, revenues came in at $68.70 billion falling from $107.85 when compared with the same quarter last year. Adjusted EPS also dipped from $2.33 to $1.85.
BP, like Shell, also saw a massive decrease in its year-over-year (YoY) adjusted EPS and revenue estimates. BP has been able to beat the revenue estimates in all three quarters and managed to beat the adjusted EPS estimates in two out of the three quarters.
As shown in the table above, both revenues and adjusted EPS are expected to go on an upward trend in 2016. A number of key catalysts, including a recovery in crude oil prices along with its merger with BG can act as stimuli for the upward trend.
BP s revenues and adjusted EPS are also expected to recover. A sharp growth in adjusted EPS can be expected prior to 2016 through 2018. One positive for the company is its compromise with the DoJ regarding the Gulf of Mexico oil spill. Unlike in the past, now the company has a fair idea of what it has to deal with and plan its future expectations accordingly. Despite the depressed crude oil prices, both Shell and BP are expected to maintain their dividend per share at $0.94 and $0.60, respectively. Maintaining dividends is vital for energy companies to maintain investor confidence.
Out of the 13 analysts covering the Shell stock, 10 rate it as a Buy and three a Hold. The 12-month price estimate for the stock is $62.31 with a 36% return potential. On the contrary, out of the 15 analysts covering the BP stock, seven rate it a Buy, seven a Hold and one a Sell with a 12-month price estimate of $37.53 with 20.8% return potential.
Shell stock was down 1.29% at $45.24, while BP was down 1.19% at $30.69 as of 1:15 PM EST Tuesday.