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Shell Fourth-Quarter Profit Plunges as Oil’s Slump Deepens

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Rakteem Katakey: Bloomberg.comJanuary 20, 2016

Royal Dutch Shell Plc said fourth-quarter profit plunged as the rout in crude prices deepened. 

The company sees profit adjusted for one-time items and inventory changes of $1.6 billion to $1.9 billion, The Hague-based Shell said Wednesday in a preliminary earnings statement. That compares with the $1.8 billion average estimate of nine analysts surveyed by Bloomberg, and profit of $3.3 billion a year earlier.

Shell, which is buying BG Group Plc in the industry’s largest deal in a decade, has cut jobs and reduced spending as Chief Executive Officer Ben Van Beurden prepares for a prolonged downturn. Crude’s slump below $30 a barrel has driven down Shell’s market value to the lowest in almost seven years and prompted concern it may be overpaying for BG’s production and cash flow.

The average price of Brent crude, the international benchmark, fell 42 percent in the quarter from a year earlier to $44.69 a barrel, the lowest since 2009. 

Aberdeen Asset Management Plc and Invesco Asset Management Ltd., two of Shell’s major shareholders, have said they will support the company’s plan to buy BG even with crude’s collapse. The acquisition allows Shell to accelerate the reshaping of its portfolio toward deepwater assets and natural gas and BG’s production is likely to grow strongly in the next three to five years, Invesco fund manager Martin Walker said.

Standard Life Investments is the only Shell holder that has so far publicly said it will vote against the combination because the acquisition is “value destructive.”

Shell has justified the deal by saying it boosts its ability to maintain dividends, makes it the world’s biggest liquefied natural gas company and gives it oil and gas assets from Australia to Brazil.

The company’s B shares, the class of stock used in the deal, have dropped 11 percent this year, extending last year’s 31 percent decline.

Shell’s shareholders are scheduled to vote on the acquisition on Jan. 27 and BG’s the next day. Shell requires the backing of 50 percent of its holders. In BG’s case, votes in favor must represent at least 75 percent of the total value of the company’s shares. The merger will probably become effective Feb. 15, Shell said.

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