• Friday, September 29, 2023
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Shell earnings slide on plunging crude price

Shell earnings slide on plunging crude price

Royal Dutch Shell is to cut more than  $15bn  in spending and freeze its dividend in an effort to plug dwindling revenues from oil sales, after the company on Thursday reported a sharp slide in quarterly earnings due to the plunge in crude prices, the Financial Times reports.

The Anglo-Dutch energy group, the first of the world’s big oil companies to report full-year results for 2014, signalled that a period of adjustment lay ahead for much of the industry, following a near 60 per cent slide in crude prices since last summer to less than  $50  a barrel.

This development will have significant impact on Nigeria’s oil industry as Shell is the biggest operator in the sector. Nigeria’s  local  content  development programme will suffer  set backs, as international oil companies operating  in the country  will be forced to suspend  some projects that would impact directly on local companies’ growth. This will likely affect activity, revenue and employment within the Nigerian sector.

A senior industry source said  it is only to be expected that the  oil  companies would react by suspending projects , especially new  ones, when they are faced with such challenges .

He added that the companies would naturally prioritise and drop off or suspend fringe projects in situations like this.

Excluding exceptionals such as tax adjustments from the sale of certain assets, Shell’s profits for the fourth quarter of last year were  $3.26bn , lower than analysts’ estimates of about  $4.1bn  and down from  $5.85bn  in the third quarter. But earnings were up 12 per cent from a year ago.

Shares in the group fell 4.8 per cent in  London , trading at £20.50 by lunchtime, on disappointment that earnings came in below expectations.

Read also: Shell, Total delay Nigeria, other West Africa projects after oil price rout

Ben van Beurden , chief executive, said the group would respond to the fall in oil prices by “stepping up our drive for stronger capital efficiency”.

This would include lower capital spending this year than in 2014, with the company curtailing more than  $15bn  of potential expenditure over the next three years. Early-stage projects would be deferred. Shell made clear that deeper cuts could be made if needed, saying it had options to reduce spending further.

“We are taking a prudent approach here and we must be careful not to overreact to the recent fall in oil prices,”  van Beurden  said.

While there would be project delays, Shell confirmed that it would press ahead with plans to drill in  the Arctic  this year, increasing spending on Alaskan exploration, which it regards as an attractive long-term prospect. Overall exploration spending would be held at  $4bn  in 2015, which meant expenditure outside  Alaska  would fall.

Van Beurden  also told reporters that the  UK  should now cut taxes on production in the  North Sea , where some fields had become uneconomic at lower prices. “It needs to be looked at as the tax position is hindering viability,” he said.

Shell’s fourth-quarter earnings were  $4.16bn  on a current cost supplies basis, down from  $5.27bn  in the previous three months. But they were 93 per cent higher than a year ago, when the group’s performance was so poor it issued a profit warning. Full-year earnings were  $19.04bn , a rise of 14 per cent from 2013.

The oil price collapse – triggered by weaker than expected demand in  China  and  Europe , Opec’s decision in November not to cut output and booming US shale production – has spurred the world’s biggest energy groups to slash spending in an effort to shore up cash flow and protect dividends.

Analysts focused on the disappointing fourth-quarter earnings figure for Shell, saying the key miss was in the upstream division, due to higher tax and other costs. One said the planned spending cuts were lower than expected.

Shell’s oil and gas production was 3.2m barrels of oil equivalent a day, slightly lower than the fourth quarter of 2013. Excluding the impact of sales and other factors such as the expiry of its  Abu Dhabi  licence, sales were 7 per cent higher than a year ago.

Upstream earnings included a net gain of  $915m , largely on divestments, while there was a  $369m  charge relating to an Australian deferred tax asset.

The company kept its fourth-quarter dividend stable at  $0.47  a share and said it would hold the payout steady for the first quarter of 2015.