Monday 24 July 2017

Shell posts higher profit after beating cost-cutting target

Royal Dutch Shell, Europe’s largest oil company, posted a 15pc increase in second-quarter profit on higher oil prices and production as it exceeded a target for cost savings.

Net income rose to $4.39bn from $3.82bn a year earlier, Shell said today in a statement. Excluding one-time items and inventory changes, earnings beat analyst estimates.

Peter Voser, in his second year as chief executive officer, expects to accelerate asset sales of as much as $8bn by the end of next year.

Cost savings of $3.5bn beat an earlier target by about 15pc and were completed early, resulting in 7,000 job reductions 18 months ahead of schedule.

“Overall, it’s a reasonable performance,” Jason Kenney, an Edinburgh-based analyst at ING Wholesale Banking, said by phone.

The results follow a record loss for BP after Shell’s close rival set aside about $30bn earlier this week to pay for cleanup costs and liabilities arising from the Macondo well disaster.

Exxon Mobil, the largest US oil company, is scheduled to report results later today.

Excluding one-time items and inventory changes, Shell’s earnings were $4.21bn. That beat the $4.08bn median estimate of 14 analysts surveyed by Bloomberg. Production rose 5pc to 3.11 million barrels of oil equivalent a day.

Mixed signals

Voser cautioned that the outlook for earnings and cashflow remain uncertain due to “mixed signals” in the global economy.

“Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure,” he said in the statement.

Shell’s Class A shares traded in London rose 0.3pc to 1,793 pence as of 8:04am. The stock is down 4.8pc this year, compared with a 33pc decline for BP, which at one point lost more than half its market value on concerns over the mounting cost of containing the leak.

Voser is targeting hard-to-reach rock formations in Australia, China and the US, as well as projects in Qatar, to boost production growth.

As much as 40pc of the company’s capital spending in the next few years has been earmarked for the Asia Pacific region.

This year has already seen startups in the Gulf of Mexico and Brazil with Perdido and the BC-10 project, while the Sakhalin project in Russia has beaten production goals.

Higher costs

Producers including Shell face higher costs following a US clampdown on offshore drilling arising from the oil spill. Shell has the most rigs affected by the ban.

Shell is still seeking to dispose of 15pc of its refining capacity and is selling retail assets in Africa and Latin America, putting a total of 35pc of its current retail markets under review.

Voser is assessing more than 35 projects that may add 8 billion barrels of oil equivalent resources, boosting production until 2020.

Shell, which has been adding more gas than oil to its resources since 2005, expects the share of gas as a proportion of total output to rise to 52pc in 2012.

Shell’s output at the Athabasca oil sand project in Canada was reduced because of maintenance works after being shut in mid-March. The unit restarted last month.

The company’s production was also affected by the suspension of pumping at the offshore EA field in Nigeria.

Crude prices averaged $78.05 a barrel in New York in the three months ending June, an increase of 31pc from a year earlier, boosting revenue for oil producers.

Refining margins are picking up after averaging $5.49 in the second quarter from $3.08 in the first three months of the year, according to BP’s Global Indicator Margin, a broad measure of the profitability of turning crude in to fuels.

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