Royal Dutch Shell Group .com Rotating Header Image

Shell takes hit of £3.2bn amid weak oil price as UK companies’ profit warnings go up

Screen Shot 2015-03-26 at 16.47.59

By JON REES, FINANCIAL MAIL ON SUNDAY: 26 April 2015

Screen Shot 2015-01-12 at 08.45.23Shell is expected to report this week that the weak oil price wiped two-thirds off its earnings in the first three months of the year.

The Anglo-Dutch oil giant, which has tabled a £46billion cash-and-shares deal to buy British gas explorer BG Group, is poised to report profits falling to £1.6billion from £4.8billion for the same period last year.

The price of a barrel of Brent crude oil, the benchmark for the oil industry which is denominated in dollars, has fallen from $115 (£76.60) a barrel last summer to $64 on Friday. Other oil indices have fallen too.

Shell is a big operator in the Canadian oil sands market, where oil is extracted from sand saturated with bitumen. Prices in this market have slumped and show little sign of recovery.

Its major Dutch gas field has seen production cut as regulators tighten safety controls, while the lower oil price is affecting liquid natural gas prices, which have also fallen, said investment bank JP Morgan.

The price of oil soared last summer as turmoil in the Middle East led to worries over supply. However, leading producers such as Iraq and Russia pumped oil in greater volumes than before. 

Saudi Arabia’s decision not to cut production to restrict supply – and so force up prices – saw Brent crude dip below $50 a barrel at the start of the year. The move was an attempt to force US shale oil suppliers out of the market by making their drilling unprofitable.

Shell’s offer for BG Group is expected to close next year after regulatory approval. Shell is paying a 50 per cent premium to BG’s share price on the day before its announcement and aims to benefit from the company’s oil and gas reserves, its strength in the liquid natural gas market in Australia and its deep water exploration off Brazil’s coast. 

Shell, under chief executive Ben van Beurden, recently announced plans to axe at least 250 jobs in its North Sea operations, though the company has said it remains committed to oil production in the North Sea.

It also sold 185 of its UK petrol stations this month, but they will continue to carry the Shell name. It has more than a 1,000 petrol stations in the UK.

Elsewhere, the falling oil price has contributed to a rise in the number of firms issuing profit warnings, according to accountancy giant EY.

In its report on the number of firms issuing warnings in the first three months of the year, EY said oil and gas firms were under pressure to cut costs even before prices fell.

Its figures show that UK stock market-quoted companies issued 77 profit warnings in the first quarter of this year, which was three more than for the same period last year, though 16 fewer than for the last three months of 2014.

Overall, 5.4 per cent of UK quoted companies issued profit warnings in the first quarter of this year – the highest first-quarter figure since 2009.

SOURCE

This website and sisters royaldutchshellplc.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.

Comments are closed.