Shell yes

30 July 2015 By Fiona Maharg-Bravo

The Anglo-Dutch major’s shares have underperformed peers since it announced the $70 bln BG takeover, which seemed to need expensive oil to work out. Cheaper crude is hurting profit, but the company is cutting costs and capex sharply. Debt is low and the dividend looks safe.

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Royal Dutch Shell on July 30 reported net profit of $3.8 billion in the first quarter of 2015, excluding inventory charges and one-offs, down 37 percent from the same quarter a year ago. The Anglo-Dutch major warned the oil price downturn could last for several years, though it sees potential for a return to a $70-$90 oil price band in the medium term.

Chief Executive Ben van Beurden said: “We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery.”

Shell said it expects organic capital expenditure to be around $30 billion in 2015, or $3 billion less than previous guidance and 20 percent less than in 2014. It expects operating costs this year to fall by 10 percent, or $4 billion, and fall further next year. Shell also said the combined pro-forma capex with BG would be $35 billion next year.

The sharp drop in oil prices sent upstream earnings down to $1 billion in the quarter, from $4.7 billion a year earlier. This was partially offset by a rise in profit from refining and trading to $2.9 billion, from $1.4 billion in the second quarter of 2014.

Shell said cash from operations was $6.1 billion in the quarter, while capital investment totaled $6.8 billion and dividends paid cost $3 billion, including $0.7 billion paid in scrip. Gearing was 12.7 percent at the end of the second quarter of 2015 against 13.4 percent at the end of the second quarter of 2014.

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