Shell profit drops by 44 per­cent

The Pak Banker - - BUSINESS -

Royal Dutch Shell Plc, which is on the brink of com­plet­ing the oil in­dus­try's largest deal in a decade, re­ported fourth-quar­ter profit that matched an­a­lyst es­ti­mates. The shares rose the most in al­most seven years amid a re­bound in global stocks and a sell­off in the dol­lar.

Profit ad­justed for one-time items and in­ven­tory changes shrank 44 per­cent to $1.8 bil­lion, near the mid­point of the pre­lim­i­nary $1.6 bil­lion-to-$1.9 bil­lion range it gave last month, Shell said Thurs­day. Crude's col­lapse has slashed earn­ings for oil com­pa­nies from Exxon Mo­bil Corp. to BP Plc, leav­ing them strug­gling to strike a bal­ance be­tween in­vest­ing for growth and mak­ing share­holder pay­outs. The Hague­based Shell is bet­ting its $50 bil­lion ac­qui­si­tion of BG Group Plc will help it main­tain div­i­dends and in­crease oil and gas pro­duc­tion at a time when cash flow is shrink­ing.

"BG now be­comes im­por­tant for Shell be­cause it helps them grow and high-grade their as­sets," Brendan Warn, a Lon­don-based an­a­lyst at BMO Cap­i­tal Mar­kets, said by phone. "It gives Shell the op­por­tu­nity to di­vest their high-cost as­sets and fo­cus on BG's high-mar­gin projects."

Shell's share­hold­ers last month ap­proved its plan to buy BG, which has oil fields in Brazil and nat­u­ral­gas as­sets from Aus­tralia to Kaza­khstan, de­spite the 40 per­cent tum­ble in crude prices since the deal was an­nounced. 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 on its prom­ises to in­vestors.

The com­pany's B shares, the class of stock used in the BG deal, ad­vanced as much as 6.8 per­cent in Lon­don, the big­gest in­tra­day gain since 2009. The stock traded up 6.6 per­cent at 1,533 pence as of 11:51 a.m. lo­cal time, par­ing its de­cline this year to 0.7 per­cent. The 61-mem­ber Bloomberg World Oil & Gas In­dex has dropped 5.4 per­cent in the pe­riod.

The slump in crude has hit earn­ings of com­pa­nies around the world. Sta­toil ASA, Nor­way's big­gest oil com­pany, said on Thurs­day fourth-quar­ter ad­justed profit fell 63 per­cent and missed an­a­lysts' es­ti­mates. BP's dropped 91 per­cent and Exxon's 58 per­cent. Chevron Corp. re­ported its first loss since 2002.

The ac­qui­si­tion of BG is due to be­come ef­fec­tive Feb. 15. 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." The com­pany plans to sell $30 bil­lion of as­sets af­ter the ac­qui­si­tion is com­plete.

As oil prices re­main low, that may be dif­fi­cult be­cause the slump has squeezed the bal­ance sheets of po­ten­tial buy­ers. Most of this year's dis­pos­als are likely to be in the se­cond half of the year, Van Beur­den said on a con­fer­ence call on Thurs­day. The com­pany di­vested $5.5 bil­lion of as­sets in 2015. Shell's re­turn on av­er­age cap­i­tal em­ployed dropped to 1.9 per­cent at the end of last year com­pared with 7.1 per­cent in 2014, ac­cord­ing to the state­ment.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.