Royal Dutch Shell has said it expects fourth-quarter profits to slide at least 40 per cent from a year ago following a collapse in crude prices that has hit industry revenues, leading to job losses and billions of dollars in spending cuts.
The Anglo-Dutch oil major, in a trading update ahead of a shareholder vote this month on its £36bn planned takeover of rival BG Group, forecast that earnings, on a current cost of supplies basis excluding exceptional items, would fall to between $1.6bn and $1.9bn, below the consensus view of analysts.
However, Ben van Beurden, chief executive, said he was “pleased with Shell’s operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness”.
“Bold, strategic moves shape our industry. The completion of the BG transaction, which we are expecting in a matter of weeks, will mark the start of a new chapter in Shell, to rejuvenate the company and improve shareholder returns,” he said.
He reiterated Shell’s plans to reduce capital spending by 20 per cent to $29bn for last year from 2014 levels, and indicated that spending for the enlarged company would be $33bn in 2016, a reduction of about 45 per cent in combined spending, which peaked in 2013.
Brent crude has tumbled more than 70 per cent from its summer 2014 peak of more than $115 a barrel to just $30, amid a US supply glut, weaker Chinese demand and Opec’s decision not to cut output.
Oil and gas groups have responded by slashing capital expenditure in an effort to shore up cash flow and preserve dividend payouts to investors. Wood Mackenzie, the consultancy, calculates that nearly $400bn of spending on big, new projects has been put on hold.
Deeper cuts lie ahead this year, say analysts.
“Flexibility for further reductions is available and will be utilised should conditions warrant that,” said Mr van Beurden.
He added that Shell’s efforts to reduce operating costs, which fell 10 per cent in 2015 and will decline further this year, combined with savings from the BG takeover, included the loss of 10,000 jobs across both companies. Preparations were “well advanced” for $30bn in planned asset sales.
Despite concern among some Shell investors that the group is paying too much for BG after the fall in oil, the company is expected to win shareholder approval for its cash-and-shares bid. It has been backed by proxy groups that advise institutions, though one big shareholder, Standard Life, has called it “value destructive”.
Norges Bank Investment Management, which manages Norway’s oil fund, the world’s largest sovereign wealth fund, said on Wednesday it would vote in favour of the Shell-BG deal.
“Norges Bank Investment Management considers that the transaction accelerates value for BG Group plc shareholders and is in the best long-term interest of Royal Dutch Shell plc shareholders,” it said.
Shell said identified items in the fourth quarter were expected to reach $200m, “mainly reflecting gains on sale of assets and impairments”, with a full year net charge of $1.6bn-$2bn.
Production for the final three months was 3m barrels a day.
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