Shell's first-quarter profits plunge 56% to $3.2bn

Royal Dutch Shell suffered a near 60 per cent slide in first-quarter profits, hit by plunging crude prices, but beat expectations as a strong contribution from its refining and trading business prevented a steeper fall.

The Anglo-Dutch oil company said on Thursday that earnings dropped 56 per cent to $3.2bn on a current cost of supplies basis excluding identified items - a measure of profits preferred by analysts. This compared with $7.3bn in the same quarter the previous year.

The company, which earlier this month announced a £55bn agreed offer for UK-based BG Group, said earnings from exploration and production, or its upstream business, "were impacted by the significant decline in oil and gas prices and lower trading contributions".

Simon Henry, chief financial officer, said in a video presentation that the impact of falling oil and gas prices amounted to $4.7bn, cutting underlying upstream earnings to just $675m from $5.7bn a year ago, a decline of 88 per cent.

Shell's operations in the US and Canada were especially hard hit, with the collapse in prices leading to an upstream loss for the Americas of $1.1bn, the biggest quarterly loss in at least a decade, according to analysts.

But, like BP and Total earlier this week, Shell added that it had benefited from "improved downstream results reflecting steps taken by the company to improve financial performance, higher realised refining margins, lower costs and increased trading contributions." Downstream profits jumped from $1.6bn to $2.6bn.

Shares in the group rose 1.6 per cent to £20.86 in early London trading.

While a near 50 per cent slide in oil prices since last summer has battered revenues across the industry, the world's biggest energy groups have displayed a resilience that owes much to their "integrated" business model.

Their networks of refineries, which process crude into higher value oil products such as petrol and chemicals, in effect act as a hedge against the slide in internationally traded Brent crude.

Oil prices have collapsed from highs of more than $115 a barrel in June to around $65 in the face of a US supply glut, weaker than expected global demand and Opec's decision in November not to cut output.

Ben van Beurden, Shell chief executive, said in a statement: "Our results reflect the strength of our integrated business activities, against a backdrop of lower oil prices.

"Meanwhile, in what is clearly a difficult industry environment, we continue to take steps to further improve competitive performance by redoubling our efforts to drive a sharper focus on the bottom line in Shell."

Asset sales so far this year have amounted to more than $2bn, as the company has scaled back its onshore presence in Nigeria, reducing operating costs and capital spending. Shell revised its guidance for capital investment this year down by about $2bn to $33bn or less.

Its strategy to "curtail" spending, however, still appears moderate when set against a wider backdrop of cuts to capital expenditure of 10-15 per cent this year by the majors. The group announced in January a $15bn reduction to projected spending over the next three years, but made it clear it would invest through the downturn.

The group said oil and gas production for the first quarter was 3.2m barrels of oil equivalent a day, down 2 per cent from the same period a year ago.

There was a one-off gain of $1.9bn for the upstream business, in large part a result of the sale of assets in Nigeria and a credit following last month's UK Budget decision to cut the rate of tax on North Sea oil and gas profits.

Mr Henry said the acquisition of BG, expected to close in early 2016, would "accelerate our financial growth strategy, particularly in deepwater and in liquefied natural gas".

In a conference call with reporters, he reaffirmed Shell's plans for a two-year exploratory drilling campaign in the Chukchi Sea in the Arctic, where 25 vessels were now headed. "If we are successful, it gives us an opportunity to sit back and think how do we develop."

Earnings for the second quarter would be affected by the impact of asset sales on production and by maintenance plans in Qatar, the Gulf of Mexico and Canada, the company said. The dividend was held at 47 cents a share.

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