Shell
said earnings adjusted for inventory changes were $1.8 billion, down
sharply from $4.2 billion in the comparable period of 2014.
For all of 2015, its earnings fell 80 percent to $3.84 billion, compared with $19 billion in 2014.
In
a statement, Ben van Beurden, Shell’s chief executive, said that the
acquisition of the British oil and gas producer BG Group, which is
expected to close in a few weeks, would be an opportunity for further
streamlining of Shell.
Mr.
van Beurden repeated earlier statements that 10,000 full-time and
contractor positions would be eliminated from the two companies as a
result of that merger.
“We are making substantial changes in the company, “ Mr. van Beurden
said, “as we refocus Shell and respond to lower oil prices.”
Mr.
van Beurden also said that to conserve capital, Shell was postponing
two major projects: a liquefied natural gas facility in Canada and a
deepwater oil and gas development off Nigeria.
It was the latest sign of how plunging oil prices
are cutting sharply into the profits of the oil majors. Chevron last
week reported its first quarterly loss since 2002. BP on Tuesday
reported a $3.3 billion fourth-quarter loss. Exxon Mobil on that same
day said that its profit for the quarter had declined 58 percent.
For
Shell, despite the cushioning effects of its large refining and
chemicals business, the falling prices of oil and gas are still doing
damage. Each $10 a barrel change in the oil price, the company says, has
an impact of about $3.3 billion on annual earnings.
Shell had forecast nearly-as-gloomy earnings two weeks ago, before the much-anticipated vote by shareholders on the proposed acquisition of BG. A few days later, investors approved the acquisition.
In
the forecast, Shell had said that it expected its profit for the
quarter, excluding inventory changes and one-time charges, to fall by as
much as 51 percent. The quarterly figures released on Thursday were
toward the high end of the $1.6 billion-to-$1.9 billion range the
company gave in its preliminary estimate last month.
Shell
also pledged to pay an annual dividend of at least $1.88 per share in
2016, matching the 2015 level. Its shares were up 3.8 percent in morning
trading in Amsterdam.
Shell
also estimated that its proven reserves of oil and gas in the ground
fell by 1.4 billion barrels in the past year, to 11.7 billion barrels.
To assure their futures, oil companies need to add to their reserves to
replace production, but with plunging prices, companies are delaying or
canceling projects and struggling to add to their reserves.
Shell produced 1.1 billion barrels in 2015.
With
petroleum prices down about 70 percent over the last 18 months, the oil
industry is experiencing its most brutal downturn since the late 1990s.
That period, a time of widespread job losses among oil companies, was a
time of industry consolidation, as BP acquired Amoco and Exxon merged
with Mobil.
Back
then, Shell stayed on the deal-making sidelines. But during the current
downturn, the company has been the only big oil company to make a bold
move by agreeing to acquire the BG Group, a medium-size oil and gas
company based in Britain for cash and shares now worth about $50
billion.
That
deal proved controversial with investors, some of whom worried about
Shell making a large takeover at a time when oil prices were still on
the way down. But shareholders from both companies have now approved the
takeover, which is expected to formally close in the middle of this
month.
Mr.
van Beurden has long tried to persuade investors that the BG
acquisition is not an expensive gamble but rather an opportunity to
choose the best of both companies and to cut jobs and expenses like
exploration. BG will also raise Shell’s status as Europe’s largest oil
and gas company. But that distinction may be difficult to celebrate at a
time of falling fuel prices.
Big
oil companies have responded to plummeting prices by cutting capital
spending and operating expenses. But with prices lower than most
forecasts, analysts and rating agencies are beginning to argue that
Shell and other companies may need to go much further.
On Monday, the credit rating agency
Standard & Poor's downgraded Shell’s long-term credit one notch —
to A+ from AA- — and put five other European oil majors, including BP
and the French company Total, on watch for similar potential downgrades.
In
explaining its downgrade of Shell, S.&P. said it expected the
company to generate significantly less cash than it planned to pay out
in dividends and capital expenditures through 2017. The agency also said
that Shell might be further downgraded after the completion of the BG
acquisition.
“We
now believe many major oil and gas companies’ current and prospective
core debt coverage metrics are likely to remain below our rating
guidelines for two or three years as the industry adjusts to lower
prices,” S.&P. said in a statement.
The
pressure on the companies’ earnings also raises questions about whether
they can continue to pay the generous dividends that are now a crucial
attraction for investors — particularly if prices remain in the current
range of $30 a barrel, or even lower.
BP,
in announcing its big loss on Tuesday, said it would continue its
10-cents-a-share dividend but planned to review it each quarter. In a
note to clients on Wednesday, Biraj Borkhataria, an analyst at RBC
Capital Markets in London, wrote that “2016 is likely to be a year of
transition for BP with limited ability” to cover its dividend unless oil
prices rose substantially.
So
far, most oil company chiefs have stuck by their commitments to
continue paying dividends. But the dividends, which cost the companies
billions of dollars each year and were set when oil was selling for more
than $100 a barrel, could prove hard to sustain.
By:
Review: Emerging Market Formulations & Research Unit, Flagship Records.
For The #FacebookTeam