Shell suffers crude awakening but profit fall defies worst expectations
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Version 0 of 1. Shell’s profits dived by 56 per cent in the first quarter as the FTSE 100 energy company became the latest victim of the sliding oil price. Shell, which recently announced a $70bn (£46bn) deal to buy BG Group, said its profit for the first three months of the year came in at a $3.2bn (£2bn) after the contribution of its oil and gas production division plunged to just $675m from $5.7bn a year earlier. Despite the decline in profits, Shell’s shares increased by 25.5p to 2,094.5p because the fall was less severe than the City had feared. The company maintained its dividend at 47 cents per share. The damage caused by the falling price of crude was offset by profits from refining and trading, which jumped to $2.65bn in the first quarter, from $1.57bn a year earlier. Profit margins from refineries are improving as cheaper oil cuts costs, at the same time as demand rises and increased stoppages for plant maintenance cut supplies. “Shell beat consensus expectations by around 35 per cent in Q1 thanks to a blowout quarter in refining and marketing,” said Kim Fustier, an analyst at Edison Investment Research. “Shell’s upstream [production] performance was far less stellar, due to lower oil and gas prices.” Shell’s chief executive, Ben van Beurden, said: “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.” The oil price tumbled from $115 a barrel in the summer to $65.80 as the US shale boom led to a glut in supply. Analysts fear the low price could persist for several years, and Shell announced a three-year cut in spending in January to help it tackle the situation. The company’s capital investment in the first quarter was $6.8bn, while divestment proceeds for the period came in at $2.2bn. Shell said its results for the current quarter would be affected by a reduction in production of about 160,000 barrels a day oil equivalent – as a result of the divestments in the past year – and a further 100,000 barrels associated with curtailing other projects. The finance director, Simon Henry, said he expected the oil price to rebound in time, adding: “I give no prediction at all about the movement of the oil price in the short term. But in the medium to longer term, the supply-and-demand fundamentals always reassert themselves.” Shell’s results came on the same day that its US rival Exxon Mobil reported a 46 per cent decline in first-quarter profits, to $4.9bn. This was also ahead of expectations, again because of strong refining figures. |