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Shares of Royal Dutch Shell (LSE:RDSA) took a shelling today despite a healthy increase in fourth quarter and full year results. Its shares closed at 2,153.5 yesterday, 28 January, but opened today at 2,079.0, down 3.5%. They kept falling in the opening minutes to 2,060.0 up until 8:11 a.m., from whence they struggled to gain ground during the day, dropping as low as 2,042.5 before finishing the day down 4.5% at 2,056.5.
I want to say that the FTSE was dragged down by Shell’s performance, but that is not the case. The FTSE fell lower by the performance of Shell investors. If Shell’s performance had anything to do with the FTSE, both Shell’s share price and the FTSE would have risen in value. So let’s not blame Shell. Let’s put the blame where it should be – pardon my bluntness – on the insane frenzy of speculative investors.
These speculative investors really put a knot in my knickers. Those who invest and hold almost always win in the long run and they do not have a negative impact on the markets. Don’t get me wrong. I understand the game. But markets really only respond to the players, not the investors.
Having said that, I will now step down, if only momentarily, from my soapbox.
- Fourth quarter earnings were up $2.0 billion from $2.2 billion in 2013 to $4.2 billion in 2014. That is a 91% increase year-on-year.
- Annual earnings rose from $16.7 billion to $19.0 billion, a 13.7% increase.
- Fourth quarter EPS increased 13% and full year earning rose 15%
Why the Shelled Shares?
There are several simple answers. They are all one-word answers. Fear. Anxiety. Trepidation. Jitters. Panic. Uncertainty. Pick one. They all apply.
The problem is how people responded to another part of the report. That was the statement that the company expects to implement potential total capital investment reductions of more than $15 billion over the three year period beginning with 2015.
Oh no! That must mean disaster!
Only if you don’t actually read the report. Here is what Shell really said:
“Today’s lower prices are creating opportunities to reduce our own costs and to take costs out of the supply chain, where there is multi-billion dollar savings potential for Shell . . . the company is deferring spending in many areas, without compromising on HSSE [health, safety, security, environment], exiting selective growth positions, and driving costs down in the supply chain. This should result in reduction of potential capital investment for 2015-17 of over $15 billion.”
Investor response should have been exactly the opposite. Shell recognizes the global economy for what it is. It is, therefore, “taking a prudent approach,” because it should and, thankfully, because it can. This is cause for confidence, not for fear.
Was no one listening, when CEO Ben van Beurden said,
“Shell has delivered where it counts in 2014. We are stepping up our drive for stronger capital efficiency, whilst being careful not to over-react to the recent fall in oil prices,”
or when he said,
“We set out an agenda in 2014 to balance growth and returns in Shell, and our results in 2014 show that this strategy is impactful where it matters: at the bottom line. By successfully delivering against our three key priorities of better financial performance, enhanced capital efficiency and continued strong project delivery, we are improving Shell’s competitive position in the oil & gas industry.”
or when he concluded, saying,
“We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices. Shell is taking structured decisions to balance growth and returns.”
This is, in my opinion, an opportune time to buy into Shell. Their house is in order. The speculators are nuts. RDSA shares are only 128.0 off of their 52-week low. Plus, with the way the company is being prudently operated, it is well-positioned to perform well despite potentially adverse conditions.
Of course, if the company continues to perform well, it appears that there may still be some idiot investors who live their lives in fear of the future. Don’t be one of them.
Disclaimer: I do not own any interest in RDSA, RDSB and I am not associated in any way with Shell Oil Company, although I do use their gasoline in my Jaguar.
