Royal Dutch Shell Group .com Rotating Header Image

Oil price plunge leads Shell to warn that 2015 earnings will more than halve, but it sees BG Group takeover as a ‘new chapter’

Screen Shot 2016-01-20 at 13.50.23

  • Shell expects full year underlying earnings to drop to between $10.4bn (£7.3bn) and $10.7bn (£7.6bn), a sharp fall on 20’14’s $22.56bn (£15.9bn)
  •  Every $10 change in crude price knocks around $3bln (£2.1bn) off earnings
  • BG says its earnings dropped in 2015 as expected, but added that the results are in line or ahead of forecasts 


Plunging oil prices have led energy giant Royal Dutch Shell to warn that its earnings are expected to more than halve for 2015, sending its shares over 4 per cent lower this morning.

The blue chip group, which is weeks away from completing a £38billion deal to buy rival BG Group, said it expects its full year underlying earnings to drop to between $10.4billion (£7.3billion) and $10.7billion (£7.6billion).

That would be slightly City below expectations and marks a sharp fall on the $22.56billion (£15.9billion) Shell reported for 2014. It will report its full year results on February 4.

Shell’s shares dropped 4.5 per cent in early trading on the FTSE 100 index, down 61.0p at 1,308.5p amid wider falls on the London market as the slump oil price slump continues to hit stocks across the board.

The expected slump in 2015 earnings comes as Shell also said its fourth quarter earnings are expected to nearly halve to between $1.6billion (£1.1 billion) and $1.9billion (£1.3billion), down from $3.26billion (£2.3billion) a year earlier and also slightly below analyst expectations.

The oil price rout has had a dramatic effect on Shell, with every $10 change in the price of crude knocking around $3billion (£2.1billion) off its earnings.

Despite the hit to earnings, Ben van Beurden, chief executive of Royal Dutch Shell said he was ‘pleased with Shell’s operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness’.

Mr van Beurden said the deal with BG Group will mark the start of a ‘new chapter in Shell, to rejuvenate the company’.

Shell’s boss added the group has been slashing costs to bolster its bottom line, stripping out $4billion (£2.8billion) from the business – around 10 per cent – in 2015 and planning to cut a further $3 billion (£2.1billion) this year.

The business has already confirmed more than 10,000 jobs will be axed as part of the BG tie-up and it is planning to offload 30 billion dollars (£21.2 billion) of assets.

Mr Van Beurden said: ‘Bold, strategic moves shape our industry.’

Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, said: ‘The significant reduction in operating costs and capital spending are prudent and necessary moves, whilst the asset disposal programme looks likely to accelerate if the BG deal proceeds as expected.

‘Each of these contributes to a cash position which, all things being equal, should protect the dividend for the foreseeable future.’

He added: ‘Even prior to today, a share price decline of 37 per cent over the last year compares to an 11 per cent dip for the wider FTSE100, and incidentally a 10 per cent rise in the BG price in that period.

‘Despite the difficulties being encountered with the underlying commodity, investor opinion remains resolute with the market consensus coming in at a buy.’

But there have been growing investor fears over the deal following the recent hefty falls in oil prices amid over-supply and falling demand as the world economy slows.

The cost of Brent crude slumped below $28 a barrel at one stage earlier this week, and held just above that level today.

Shell has priced its acquisition of BG based on oil prices rising sharply from their current low levels – predicting a bounce back of more than 35 per cent this year and further rises next year.

In a move to appease worried investors, Shell confirmed shareholders will share out $27billion (£19.1billion) in dividends for 2015 and 2016, with the group confirming payouts are expected to total $1.88 (£1.33) a share for last year and at least the same for the year ahead if the BG takeover completes.

The deal, which has already cleared the regulatory hurdles, requires the support of 50 per cent of Shell shareholders and 75 per cent of BG shareholders.

Investor Standard Life said last week that it would vote against the deal, with David Cumming, the fund manager’s head of equities saying oil needed to be over $60 a barrel for the deal to work.

The vote will take place on January 27 and if the deal is given the green light, the deal is set to complete by February 15.

In its own trading updated released today, BG said its earnings dropped in 2015 as expected, but added that the results are in line or ahead of forecasts.

BG chief executive Helge Lund said: ‘Our excellent operational performance in 2015 is expected to deliver results in line with, or ahead of, our guidance for the year.’

The oil and gas company said it expects to report total results earnings of ‘at least’ $2.30billion (£1,63billion) in 2015, a near halving from the $4.03billion (£2.85billion) reported in 2014.

BG said its production in 2015 averaged 704,000 barrels of oil equivalent per day, ahead of the group’s guidance of 680,000 to 700,000 barrels a day.

The firm said: ‘Full year E&P production volumes are expected to average 704,000 barrels of oil equivalent per day in 2015, around 16 per cent higher than 2014 reflecting growth primarily in Australia, Brazil and Norway.’

BG shares on the FTSE 100 index were down 2.6 per cent, or 24.4p at 915.5p. 

Read more:

Follow us: @MailOnline on Twitter | DailyMail on Facebook and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

Comments are closed.

%d bloggers like this: