Shell 1Q profit down 56%

Royal Dutch Shell’s first quarter 2015 earnings on a current cost of supplies (CCS) basis earnings excluding identified items were $3.2 billion compared with $7.3 billion for the first quarter 2014, a decrease of 56%.  According to Reuters, the result beat analysts’ expectations. The company’s 1Q earnings on a current cost of supplies were $4.8 billion compared with $4.5 billion for the first quarter 2014.

Shell said that compared with the first quarter 2014, CCS earnings excluding identified items benefited from improved Downstream results reflecting steps taken by the company to improve financial performance, higher realised refining margins, lower costs, and increased trading contributions.

In Upstream, earnings were impacted by the significant decline in oil and gas prices and lower trading contributions. Weaker exchange rates resulted in a hurt to deferred tax positions of some $700 million compared with the first quarter 2014, which were not included as identified items. This was partly offset by lower costs and new high-margin liquids production volumes from new deep-water projects and improved operational performance, Shell said in its quarterly statement.

“In parallel we continue to reduce our operating costs and capital spending”

Oil and gas production for the first quarter 2015 was 3,166 thousand boe/d, a decrease of 2% compared with the first quarter 2014. Excluding the impact of divestments, Abu Dhabi license expiry, PSC  price effects, and security impacts in Nigeria, first quarter 2015 production was 1% higher than for the same period last year.

Shell CEO Ben van Beurden said: “Our results reflect the strength of our integrated business activities, against a backdrop of lower oil prices. Meanwhile, in what is clearly a difficult industry environment, we continue to take steps to further improve competitive performance by redoubling our efforts to drive a sharper focus on the bottom line in Shell.

“Part of this sharper focus is the sale of non-strategic assets. Asset sales total over $2 billion so far this year, as we successfully reduced our onshore footprint in Nigeria.

Further capex slash

Shell says it continues to curtail capital investment, retaining attractive options for the medium term, whilst  balancing affordability, growth and returns. Organic capital investment for 2015 is expected to be $33 billion or less, a reduction of some $2 billion from earlier guidance for 2015, and from 2014 levels. The company has explained that this this reflects the dynamic nature of investment decisions in growth projects.

Shell CEO said: “In parallel we continue to reduce our operating costs and capital spending; and by deferring and reshaping new projects, we can achieve further efficiencies and savings in the global supply chain.”

Ben van Beurden also took the opportunity to comment on Shell’s intent to buy BG Group for $70 billion.

“Looking ahead, the proposed combination with BG, which we announced in April, would create a stronger company for both sets of shareholders.”

“The combination with BG would accelerate Shell’s growth strategy in deep water and LNG, and create a springboard for further optimisation of our asset base, particularly when evaluating the longer-term portfolio.”