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Shell profits tumble following BG merger

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By Jillian Ambrose4 MAY 2016 • 8:32AM

Shell posted a sharp fall in profits in its first set of results since merging with global gas giant BG Group, but nevertheless beat expectations against a backdrop of low oil prices.

The oil major reported first quarter profit of $455m, less than half the $942m posted in its results for the last three months of 2015 and a fraction of its $4.5bn for the same period last year.

On a cost of supplies basis, which the oil industry uses to account for fluctuations in the price of oil, Shell made $1.6bn over the first quarter of the year. This was better than analyst expectations of just over $1bn but still well below the $3.7bn in the first quarter of 2015.

Oil companies have taken aggressive cost cutting measures as they struggle against plummeting oil prices, which is recently hit twelve-year lows of $28 a barrel.

Shell chief executive Ben van Beurden said he is planning to cut investment for 2016 by a further 10pc to $30bn compared to its previous expectations. It will also be able to combine its activities with BG Group at a lower cost than first estimated, he said.

“The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction. This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out.

“The completion of the BG deal has reinforced our strategy and strength against the backdrop of hugely challenging times for our industry. For Shell and our shareholders, this is a unique opportunity to reshape and simplify the company.”

RBC Capital analyst Biraj Borkhataria said the group’s maiden set of results as a combined entity might raise questions among investors but that Shell would be given time to show it could make the merger work. 

“It would be a faux pas to read too much into one quarter’s headline numbers, in our view, so to that end, we think investors will look through any uncertainty and focus on the longer term story,” he said.

The mega-merger was backed by a strong majority of shareholders who shrugged off concerns that Shell was paying over the odds for BG Group and approved the deal in January this year.

Shell consistently countered fears that it overpaid for BG Group, a market leader in liquified natural gas, saying that the deal was based on a long-term view of the sector and would provide a “springboard” back to profitability.

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