Shell Profit Falls But Beats Forecasts
May 04 2016 - 4:00AM
Dow Jones News
LONDON—Royal Dutch Shell PLC said Wednesday it is continuing to
hammer down costs and spending as the company moves to integrate
its roughly $50 billion acquisition of BG Group PLC in the midst of
a historic oil price slump.
In its first set of earnings since it completed the acquisition
of BG earlier this year, Shell reported a sharp drop in profit, but
said lower costs had helped offset the impact of weaker oil and gas
prices and an increase in operating expenses associated with
BG.
The company said it expects to spend $30 billion this year on
finding and developing oil and gas projects, slashing $3 billion
from its previous guidance. Operating expenses for the combined
company are expected to be $40 billion in 2016, down from $53
billion in 2014.
The addition of BG has also sharply boosted the company's
production volumes, which rose 16% in the first quarter from a year
earlier to 3.7 million barrels of oil equivalent a day.
Chief Executive Ben van Beurden has staked his reputation on the
deal, which is intended to refocus the Anglo-Dutch oil giant on the
fast-growing liquefied natural gas market and deep water oil
projects. But the acquisition faced criticism from some investors
and analysts concerned that Shell was overpaying.
"The completion of the BG deal has reinforced our strategy and
strength against the backdrop of hugely challenging times for our
industry," Mr. van Beurden said. "This is a unique opportunity to
reshape and simplify the company."
Mr. van Beurden must now prove the value of the deal, while also
guiding the company through a near two-year slump in oil prices
that has forced painful spending cuts and buffeted the sector's
earnings.
Shell said its quarterly profit on a current cost-of-supplies
basis—a number similar to the net income that U.S. oil companies
report—was $800 million, down 83% from a year earlier. Its adjusted
earnings, stripping out one-off items like proceeds from
divestments, fell to $1.6 billion from $3.7 billion a year earlier,
but still beat analysts' expectations.
The company capped off a mixed season of big oil earnings,
following the industry trend of deploying sharp cost cuts to
weather the steep drop in oil prices over the last two years.
Shell's shares were slightly lower in early morning trading in
London, sliding nearly 1% to £ 17.49 ($25.48).
"We continue to reduce our spending levels, to capture cost
opportunities and manage the financial framework in today's lower
oil price environment," Mr. van Beurden said. "We will continue to
manage spend, through dynamic decision-making across the
organization, taking advantage of opportunities from both the
deflating market and the two companies coming together."
Write to Sarah Kent at sarah.kent@wsj.com
(END) Dow Jones Newswires
May 04, 2016 03:45 ET (07:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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