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TheStreet Open House

There's Bombshell Value in Royal Dutch Shell

NEW YORK (TheStreet) - With less-than-glowing results coming in from Chevron (CVX) and Exxon Mobil (XOM), I don't believe the Street expected an energetic quarter out of Royal Dutch Shell (RDS-A), which has struggled over the past couple of quarters to meet its oil and gas production targets. But investors didn't expect a fifth of Shell's earnings to be wiped out due to (among other things) a significant write-down on the value of its North American shale assets.

While Shell is not alone in its output challenges, unlike Exxon and Chevron, Shell is the only one among the oil majors to reduce its previously-issued output guidance. On the announcement, Shell, whose stock trades in two separate classes (RDS-A and RDS-B), fell 5%. And with the poor results coming in out of North America, which is not expected to produce any returns for the rest of the year and possibly next, it doesn't seem as if management's multibillion-dollar bet on U.S. shale will pay off any time soon. But I don't believe it's time for panic, either.

While Shell's profits did decline 31% this quarter, it's worth noting here that both Exxon and Chevron, which occupy the top two spots among the energy majors in terms of size, also posted profit declines. Not to make light of Shell's dismal performance, but rivals like BP (BP) and Total (TOT) didn't fare any better with profit declines of 26% and 20%, respectively. So it's hard to look at Shell's results and not appreciate that it might just be an industry trend.

As with Exxon and Chevron, rising costs and exploration charges, which are standard occurrences in this sector, significantly impacted Shell's bottom line. Not to mention, things like currency exchange rates and Shell's on-going security-related challenges in Nigeria, where a blockage impacted profits by $300 million.

What's more, the fact that refiners like Valero (VLO) continue to struggle with throughput and weak volumes, it also came as no surprise that Shell struggled here as well. Not to mention, Chevron posted a 45% year-over-year decline in refining profits.

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