Saturday 22 October 2016

Shell beats oil downturn with brighter figures from refining and chemicals

Rakteem Katakey

Published 05/05/2016 | 02:30

Shell chief executive Ben Van Beurden has slashed costs. Photo: Bloomberg
Shell chief executive Ben Van Beurden has slashed costs. Photo: Bloomberg

Royal Dutch Shell's first-quarter profit beat analysts' estimates as better-than-expected earnings from oil refining and chemicals production countered crude prices at a 12-year low.

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Profit adjusted for one-time items and inventory changes fell 58 percent to $1.6bn (€1.3bn), The Hague-based Shell said Wednesday. That exceeded the $1.18 billion average estimate of 11 analysts surveyed by Bloomberg. The earnings include results from BG Group, 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 and Total beat estimates last week.

Shell earned $2bn from its downstream businesses, including refining, trading and chemicals, exceeding the $1.7bn analysts' estimate provided by the company. It lost $1.4bn from oil production, matching estimates.

Mr 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, Mr Van Beurden said. Capital investment in 2016 is "trending toward" $30bn from previous guidance of $33bn, 36pc 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. Mr Van Beurden pressed ahead with the $52bn 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. (Bloomberg)

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