Low oil price hits energy giant’s earnings

Royal Dutch Shell suffered a 72% plunge in earnings due to weak oil prices and high costs following its $54 billion takeover of BG Group.

The Anglo-Dutch energy giant missed quarterly profit expectations by more than $1bn.

Its second-quarter current cost of supplies (net income) was $1bn, much lower than the $2.1bn expected.

Analysts expected a better performance at the upstream division, which lost $1.3bn, compared with a $469 million deficit last year.

Chief executive Ben van Beurden said: “Lower oil prices continue to be a significant challenge across the business, particularly in the upstream sector.”

Oil averaged $39.59 a barrel in the second quarter, down from $55.84 a year earlier. Shell said it loses or gains around $5bn with every $10 move in Brent crude prices.

Shell spent more than expected on corporate expenses, with some $250m going on redundancy and restructuring charges following the BG deal.

The oil major is laying off some 12,500 workers over 2015-16.

Shell’s London-listed ‘A’ shares had their worst day in two months and were down 3.4% by lunchtime, ending the session 2.89% down at 1,984.5p, compared with a 0.6% fall in the oil and gas companies index.

Rivals BP and Statoil also reported worse-than-expected second-quarter results this week.

Shell left unchanged its main capital investment and disposal targets as well as its prized dividend.

Cash flow from operating activities for the second quarter was $2.3bn compared with $6.1bn for the same quarter last year.

Chief financial officer Simon Henry said at current oil prices of $43-43.50 a barrel, the company would not make enough money unless it raised cash from asset disposals.

Chief executive Ben van Beurden spoke of the challenge of low oil prices.