What Can Be Derived From Royal Dutch Shell Plc’s Q4 FY19 Production Update?

London Stock Exchange-traded Royal Dutch Shell Plc (LON:RDSA) is the UK’s 2^nd largest oil, gas and coal company in terms of market capitalisation. Its operational interest lies in the exploration of crude oil and natural gas around the world, both from conventional fields and from sources such as tight rock, shale and coal formation. Its areas of operations are divided into four segments which are Integrated Gas, Upstream, Downstream and Corporate.

The energy major recently, as on December 20, 2019, reported its production update for the fourth quarter of FY19 ending as on December 31, 2019. In the statement, the group intimated that its integrated gas production is estimated in a range of 920 and 970k bbl of oil equivalent per day. The company expects the volumes of LNG liquefaction are likely to be between 8.8 to 9.4 million tonnes. The company also stated that trading and optimisation performance is projected to be normal and roughly in line with the 2nd quarter of 2019. As per an earlier disclosure, more than 80% of the company’s term contracts for LNG sales in 2018 were linked to the oil prices and with a price-lag of on average three to six months.

In the Upstream segment, company’s production is expected to be between 2,775 and 2,825 thousand barrels of oil equivalent per day, together with well write off in the range of $100-200m against the Q4FY18, with no impact on cash expected.

In the Downstream segment, refinery availability is estimated to be between 91% to 93%, at par with the third quarter of FY19. However, refinery margins are impacted on account of the ongoing weakness in the macro-environment. Sales volume of Oil products are forecasted to be in between 6,500 to 7,000k bbl per day.

The company also reported that chemicals manufacturing plant availability is likely to be in the range of 83% to 85% and chemical sales volume are forecasted to be in the range of 3,400 and 3,600k tonnes. However, intermediate margins and Chemicals cracker are likely to be significantly lower against the Q3FY19, driven by a challenging macro environment. Total margins are likely to get obstructed by outages and significantly lower asset use.

In the same statement, the group also reported that post-tax impairment charges are likely to be between $1.7-2.3 bn in the fourth quarter of FY19 and full-year capital expenditure would be near to the lower end of the $24-29 bn range.

The company is due to report its Q4FY19 results as on January 30, 2020.

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Stock Performance

Shares of RDSA have delivered negative price return of 1.5% on a YoY basis, down by approximately 6% over the past three months, however, were marginally up by 1.23% on a month-over period and were up by 0.96% in the last five traded session. In the year-over period, its shares have registered a 52w high of GBX 2,811.4 (as on May 07, 2019) and a 52w low of 2,143.0 (as on December 05, 2019), respectively.

At the time of writing as on December 30, 2019, at 08:46 AM GMT, shares of RDSA traded 7.24 points or 0.31% lower against the previous close at GBX 2,259.25. Also, at the current trading level, its shares traded 20% lower against its 52w high traded level, and 5% above its 52w low price level, which reflects current prices is hovering near its 52w low price level.

During the year-over period, shares of RDSA traded 134 times higher, 116 times lower and remained unchanged for 2 times against its respective previous closing prices, which reflects Ups surpassing Downs in the year-ago period, and Ups and Downs ratio standing at 134/116 or 1.15x.

However, in the past three months, Down moves have surpassed Ups, and stock of RDSA traded 28 times higher and 35 times lower against its respective previous closing levels, and Ups/Downs ratio stood at 0.8x.

Falling oil prices in the international commodity market would be a reason, which is impacting the group’s performance in London.

However, at the current trading level, the group is offering a decent dividend yield of 6.7%, which is significantly above the dividend yield of benchmark FTSE 100 index of 4.4%, with a track record of consistent dividend payment since past many years.

Technical summary

At the current traded level, the group’s stock traded above its 5-day, 10-day and 20-day Simple Moving Averages but traded well below its 200-day SMA of GBX 2,391.57, reflecting a long-term trend in the stock is still unfavourable. Also, after a downward break out its shares recorded in the July 31, 2019 trading session from GBX 2,634.0 level on the daily price chart, the stock is still trading well below those levels and GXB 2,600.0, which would act as a long-term crucial resistance level for the stock.

However, the Moving Average Convergence Divergence (MACD) is rising, with the difference between the 12-day exponential moving average (EMA) and 26-day EMA remaining positive, reflecting stock is consolidating from the bottom it tested as on December 05, 2019. However, GBX 2,375 is immediate crucial resistance level for the stock; any upward break out from this level could send stock prices higher.

Also, at the current traded level, its shares are trading significantly below its 2-year moving average of GBX 2,456.01; therefore GBX 2,456.0 would also act as a long-term resistance level for the stock in coming time.

However, 14-day and 9-day Relative Strength Index of the stock hovering in a neutral zone reflects no specific trend in the stock.

Also, after testing upper band of the Bollinger Band® on December 27, 2019, the stock is trading lower in the December 30, 2019 trading session, however, on the daily price chart, the Bollinger Band® is narrowing reflecting price consolidation for the stock.