Shell posts a blowout quarter in downstream

Shell beat consensus expectations by ~30% in 1Q thanks to a blowout quarter in refining & marketing (where BP and Total also beat on Tuesday). Its downstream division posted the best quarterly earnings since the ‘golden age of refining’ in 2006-07. R&M profits were buoyed by strong global refining margins, cost savings initiatives and a healthy contribution from trading. Other majors with high exposure to downstream such as Exxon should also benefit from the current favourable refining environment, highlighting the value of integration.

Shell’s Upstream performance was far less stellar, due to lower oil & gas prices and FX movements. Upstream Americas made its biggest quarterly loss in at least a decade.

Having previously guided to flat y/y capex of $35bn in 2015, Shell is now pointing to a $2bn reduction vs last year’s levels, reflecting delays to project sanctions. This does not come as a huge surprise as oilfield service costs continue to fall, giving majors opportunities to lower their project breakevens.