Shell profits plummet 72% as lower oil price hits

Europe's biggest oil company has enforced job cuts and projects delays during the two-year slump in prices

Shell has struggled to stem losses from oil and gas production as the oil price has slumped (Getty)

Shell reported a 72 per cent decline in second-quarter earnings, missing estimates as lower crude prices continued to hurt income, while refining margins narrowed.

Profit adjusted for one-time items and inventory changes fell to £800m from £2.9bn a year earlier, Europe’s biggest oil company said on Thursday. Analysts had been expecting a £1.64bn profit.

Ben van Beurden, chief executive, who earlier this year completed Shell’s record acquisition of BG Group, is focusing on boosting production and lowering costs to drive earnings.

Brent crude’s 25 per cent increase during the quarter provided some prospect of relief to oil companies after a two-year slump forced project delays and job cuts. Yet the subsequent price dip shows the recovery is likely to be lengthy.

“Lower oil prices continue to be a significant challenge across the business, particularly in the upstream,” Mr Van Beurden said in a statement. Second-quarter production was 3.51 million barrels of oil equivalent a day, compared with analyst estimates for 3.63 million.

Shell’s loss from oil and gas production widened to £1bn in the quarter from £355m a year earlier.

Profit from downstream, which includes refining, dropped 39 per cent to £1.35bn while earnings from integrated gas, which includes liquefied natural gas, fell 38 percent to £658m.

Shell plans to spend £19bn to £23bn a year through 2020, though Mr Van Beurden has said the Anglo-Dutch company has the option to cut expenditure further and defer more projects if oil prices stay below $50 a barrel. Brent traded below $44 on Thursday. The benchmark crude averaged $47.03 in the second quarter, compared with $63.50 a year earlier and $35.21 in the first quarter of this year.

Shell completed the acquisition of BG for £46bn on 15 February. The purchase gave it a 20 per cent share of the global liquefied natural gas market, with production facilities from Australia to the US, as well as high-margin oil fields in Brazil.

Shell’s B shares in London, the most widely traded, have increased 37 per cent since the deal was completed. BP has risen 30 per cent in the period and Total is up 11 per cent.

BP reported a 45 per cent decline in profit on 26 July, while Total posted a 30 per cent drop in earnings on Thursday.

Exxon Mobil, the world’s biggest oil company by market value, and Chevron will announce their results on Friday.

The biggest oil producers also run refineries, which have benefited from low crude prices over the past two years and provided a safety net as earnings from exploration and production dwindled. Global refining margins averaged $13.80 a barrel in the quarter through June compared with $10.50 in the preceding three months, according to BP.

The margin has shrunk to $10.70 a barrel this month as demand growth slows and inventories build.

At the same time, crude’s rally is fading. Production shuttered by wildfires in Canada and by militant attacks in Nigeria is returning, and shale drillers in the US are bringing back some rigs.

While there’s consensus among analysts that the worst of the oil glut is over, the International Energy Agency cautioned this month that “the road ahead is far from smooth”.

© Bloomberg