Shell Fourth-Quarter Profit Drops 44% as Crude Prices Tumble – Bloomberg

Royal Dutch Shell Plc, which is on the brink of completing the oil industry's largest deal in a decade, said fourth-quarter profit fell 44 percent after the rout in crude prices deepened.

Profit adjusted for one-time items and inventory changes shrank to $ 1.8 billion, near the midpoint of the preliminary $ 1.6 billion-to-$ 1.9 billion range it gave last month, Shell said Thursday. That matches the $ 1.8 billion average estimate of 14 analysts surveyed by Bloomberg, and compares with profit of $ 3.3 billion a year earlier. 

Crude's collapse has slashed earnings for oil companies from Exxon Mobil Corp. to BP Plc, leaving them struggling to strike a balance between investing for growth and making shareholder payouts. The Hague-based Shell is betting its $ 50 billion acquisition of BG Group Plc will help it maintain dividends and increase oil and gas production at a time when cash flow is shrinking. 

"BG now becomes important for Shell because it helps them grow and high-grade their assets," Brendan Warn, a London-based analyst at BMO Capital Markets, said by phone. "It gives Shell the opportunity to divest their high-cost assets and focus on BG's high-margin projects."

Oil's Collapse

Shell's shareholders last month approved its plan to buy BG, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan, despite the 40 percent tumble in crude prices since the deal was announced. The average price of benchmark Brent in the fourth quarter was $ 44.69 a barrel, the lowest since 2004. Average prices have lost more than $ 10 this quarter, making it harder for Shell to deliver on its promises to investors.

The company's B shares, the class of stock used in the BG deal, advanced as much as 4.3 percent in London, the biggest intraday gain in a week. The stock traded up 3.7 percent at 1,490.5 pence as of 8:11 a.m. local time, paring its decline this year to 3.4 percent. The eight-member FTSE 350 Oil & Gas Producers Index has dropped 1.8 percent in the period. 

The acquisition of BG is due to become effective Feb. 15. Its completion "marks the start of a new chapter in Shell, rejuvenating the company and improving shareholder returns," Chief Executive Officer Ben Van Beurden said in a statement. "Shell will take further impactful decisions to manage through the oil-price downturn, should conditions warrant that."

The company plans to sell $ 30 billion of assets after the acquisition is complete. As oil prices remain low, that will be difficult because the slump has squeezed the balance sheets of potential buyers. It divested $ 5.5 billion of assets in 2015.

Shell reduced operating costs by $ 4 billion, or about 10 percent, over the year, and plans to cut them by $ 3 billion in 2016. It expects $ 33 billion of capital spending this year following the combination with BG, lower than a previous estimate of $ 35 billion.