Shell Profits fall but beats Forecasts


It is not all bad for The Anglo-Dutch Oil and Gas Major. At a time when Brent crude prices are at a 12 year low the company still managed a net income, of $1.55 billion after adjustments. Though on an YoY basis this is a 58 per cent but given that analysts’ expectations was just of $1.04 billion it is surely a turn around, It managed to beat the expectation on the back of a surge in its more than expected earning from its down stream business.The earnings include results from BG Group Plc, which Shell bought in February.

Chief Executive Officer Ben Van Beurden, who staked his reputation to buy BG, is now banking on those assets to help Shell ride out oil’s downturn and surpass competitors when prices rise again. The Anglo-Dutch company is using its refineries and chemical plants to counter declining earnings from crude and gas production. A similar strategy helped BP Plc and Total SA beat estimates last week.
Shell earned $2 billion from its downstream businesses, including refining, trading and chemicals, exceeding the $1.7 billion analysts’ estimate provided by the company. It lost $1.4 billion from oil production, matching estimates.
Debt Burden
Van Beurden has trimmed spending, renegotiated contracts, eliminated thousands of jobs and sought to improve efficiency to weather the oil-market slump. Yet the acquisition of BG is driving up Shell’s debt gearing, which resulted in a credit-rating cut by Fitch Ratings in February. A downgrade can increase the cost of borrowing for companies.
The delivery of efficiency savings from the takeover will be “accelerated” and at a lower cost than originally set out, Van Beurden said in a statement. Capital investment in 2016 is “trending toward” $30 billion from previous guidance of $33 billion, 36 percent lower than Shell and BG’s combined investment in 2014, he said.
Brent crude, the global benchmark, sank to the lowest since 2004 in the quarter. Van Beurden pressed ahead with the $52 billion purchase of BG even as Brent dropped below $28 a barrel, adding oil and gas assets from Brazil to Kazakhstan and Australia and increasing Shell’s dominance of the liquefied natural gas market.
Oil and gas production, including output from BG’s assets, rose 16 percent in the first quarter to 3.66 million barrels of oil equivalent a day.
Crude has rallied since its low in January, rising above $45 as U.S. production slows and major producers including Saudi Arabia study a possible cap on output. The increase in prices has pushed up Shell’s B shares 14 percent this year in London after a 31 percent decline in 2015. The stock is also the best performer among the world’s five biggest non-state oil companies, which include Exxon Mobil Corp. and Chevron Corp.