Shell Q4 profit falls over 45% to $1.8 bn as crude price fall bites

04 Feb 2016

Royal Dutch Shell Plc, which is in the process of acquiring British oil and gas producer BG Group, in one of the oil industry's largest deals in a decade, has reported a 44-per cent fall in its fourth-quarter net profit at $1.8 billion.

Profit adjusted for one-time items and inventory changes stood at $1.8-billion for the quarter, compared with a profit of $3.3 billion a year earlier - a 44-per cent year-on-year decline - after the rout in crude prices deepened.

For all of 2015, its earnings fell 80 per cent to $3.84 billion, compared with $19 billion in 2014.

Plummeting crude prices have hit oil companies across the world and slashed earnings of other oil majors, including Exxon Mobil Corp and BP Plc, retarding investments in new oil exploration while at the same time hitting investor returns. 

For Shell, despite the cushioning effects of its large refining and chemicals business, each $10 a barrel change in the oil price has an impact of about $3.3 billion on annual earnings.

The Hague-based Shell had earlier forecast its fourth quarter profit to be between $1.6 billion and $1.9 billion. 

Shell said total dividends paid to shareholders in the quarter were $3.0 billion. The board has proposed dividend for Q4 of 2015 of $0.47 per ordinary share and $0.94 per American depositary share.

Shell is betting on its $50-billion acquisition of BG Group Plc to maintain dividends and increase oil and gas production at a time when cash flow is shrinking.

Shell's shareholders last month approved its plan to buy BG, which has oil fields in Brazil and natural gas assets from Australia to Kazakhstan, despite the 40 per cent tumble in crude prices since the deal was announced.

The acquisition of BG is due to become effective 15 February. Its completion ''marks the start of a new chapter in Shell, rejuvenating the company and improving shareholder returns,'' chief executive officer Ben Van Beurden said in a statement. ''Shell will take further impactful decisions to manage through the oil-price downturn, should conditions warrant that.''

Shell plans to sell $30 billion of assets after the acquisition of BG Group is complete, despite low oil prices and the squeeze on the balance sheets of potential buyers.

In a statement, Ben van Beurden, Shell's chief executive, said that the acquisition of the British oil and gas producer BG Group, which is expected to close in a few weeks, would be an opportunity for further streamlining of Shell.

Van Beurden repeated earlier statements that 10,000 full-time and contractor positions would be eliminated from the two companies as a result of that merger.

Shell reduced operating costs by $4 billion, or about 10 per cent, over the year, and plans to cut them by $3 billion in 2016. It expects $33 billion of capital spending this year following the combination with BG, lower than a previous estimate of $35 billion.

The average price of benchmark Brent in the fourth quarter was $44.69 a barrel, the lowest since 2004. Average prices have lost more than $10 this quarter, making it harder for Shell to deliver.