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Shell earnings set to be cut by half amid plunging crude oil prices

Published 20/01/2016

Shell says a deal with BG Group will mark the start of a
Shell says a deal with BG Group will mark the start of a "new chapter"

Oil giant Royal Dutch Shell said earnings are expected to more than halve for 2015 after being hammered by plunging crude prices.

The group, which is weeks away from completing a 55 billion US dollar (£38 billion) deal to buy BG Group, said it expects full-year underlying earnings to tumble to between 10.4 billion dollars (£7.3 billion) and 10.7 billion dollars (£7.6 billion).

This is slightly below expectations in the City and marks a sharp fall on the 22.56 billion dollars (£15.9 billion) reported for 2014.

Ben van Beurden, chief executive of Royal Dutch Shell, said the deal with BG Group will mark the start of a "new chapter in Shell, to rejuvenate the company".

Mr van Beurden added the group has been slashing costs to bolster its bottom line, stripping out 4 billion US dollars (£2.8 billion) from the business - around 10% - in 2015 and planning to cut a further 3 billion dollars (£2.1 billion) 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."

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 crude slumped below 28 US dollars a barrel at one stage earlier this week.

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

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

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

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

Shell's shares dropped 4% after the update amid wider falls on the London market as the oil price slump continues to hit stocks.

The slump in 2015 earnings comes after Shell said fourth quarter earnings are expected to nearly halve to between 1.6 billion US dollars (£1.1 billion) and 1.9 billion US dollars (£1.3 billion).

This is down from 3.26 billion US dollars (£2.3 billion) a year earlier and slightly below analyst expectations.

Despite the hit to earnings last year, Mr van Beurden said he was "pleased with Shell's operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness".

The oil price rout has had a dramatic effect on Shell, with every 10 US dollar change in the price of crude having an impact of around 3 billion US dollars (£2.1 billion) in earnings.

It will report full-year results on February 4.

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