Shell boss Ben van Beurden delivered worse than expected full year results
Jillian Ambrose: 2 FEBRUARY 2017 • 8:55AM
Royal Dutch Shell has dashed investor hopes for a resurgence in profits after reporting disappointing earnings from its exploration and production business.
Europe’s largest oil company was expected to announce full-year profits double those of last year, but instead they fell 8pc to $3.8bn (£2.99bn), their lowest level in over a decade.
The results came in well below City forecasts. Analysts had been expecting the company to make $8.17bn on a current cost of supplies (CCS) basis, a standard measure of profit in the industry.
Shell boss Ben van Beurden defended the company’s performance saying it had managed to cut debt while protecting shareholder dividends. The reassurance on investor payouts helped buoy the share price by 1.5pc in early trading to £22.59.
On a statutory basis, pre-tax profits rose 136pc to £4.58bn.
“We are reshaping Shell and delivered a good cash flow performance this quarter with over $9bn in cash flow from operations. Debt has been reduced and, for the second consecutive quarter, free cash flow more than covered our cash dividend,” Mr Van Beurden said.
For the year as a whole Shell deepened its losses in its exploration and production business from $2.2bn to $2.7bn as low oil prices continued to exert pressure on major oil companies. Profits in its downstream business, which includes oil refining and petrochemicals, slipped from $9.7bn to $7.2bn.
The full-year numbers were also dragged down by a difficult final quarter for the company. Shell’s CCS earnings were $1.8bn excluding exceptional items, up slightly from $1.6bn in the final months of 2014 but well below analysts’ consensus forecast for $2.79bn.
In the same quarter the company booked $500m of impairments due to tax reassessments and an earnings slump in its ‘upstream’ production and exploration business, which made profits of $35m, six times less than the $223m expected by analysts.
In response to the downturn in the oil market, Shell is looking to sell off $30bn in assets. It was able to report progress in this scheme, having announced earlier this week the $3bn sale of North Sea assets, estimated to be worth half its total portfolio in the basin.
Mr Van Beurden told the BBC that the company was “pretty close” to announcing another $5bn worth of sales as part of its efforts to streamline its operations and shore up its balance sheet after its takeover of FTSE 100 peer BG Group last year.
“Our strategy is starting to pay off and in 2017 we will be investing around $25bn in high-quality, resilient projects. I’m confident 2017 will be another year of progress for Shell to become a world-class investment,” he said.