Compared to last year, on Thursday Royal Dutch Shell said that its earnings dropped 56% for the first quarter as improvements in marketing & refining performance fail to offset impact of plunging oil prices.
In Scotland on Thursday, Royal Dutch Shell (LON: RDSB) reported that its earnings dropped 56% for the first-quarter compared to a year-ago as performance improvements in refining and marketing failed to offset the impact of plummeting oil prices.
The company’s profit, which is adjusted for one-time items and inventory changes, was $3.2 billion, compared to $7.3 billion during the same period a year-ago. Despite this decline, the results managed to exceed analysts’ expectations.
Analysts were concerned regarding the first quarter results from Shell. The company stated that earnings from finding and producing oil and gas were down to $675 million compared to $5.6 billion last year. This is an indication of how fast margins are eroded with the drop in oil prices.
The company stated that the price it got for oil in the 1st quarter was 52% lower than oil prices for the same period a year-ago, while the natural gas price dropped 27%. The impact of the price drop was a $4.7 billion cut from earnings.
Biraj Borkhataria, analyst from RBC Capital Markets, said that profits from “integrated gas” referring mostly to liquefied natural gas, plummeted sharply to around $1.2 billion, compared with around $3.3 billion last year. Shells liquefied natural gas is an important earner and a huge part of the calculus within its recent bid of $70 billion for BG Group, once forming part of British Gas and remains one of the biggest players in liquefied natural gas.
Meanwhile, the company continues to battle with business in the Americas. This struggle can be seen in its $1.1 billion loss this quarter, attributed in part to decreased shale gas prices in the US and expensive preparations for drilling this summer in Alaska. The company is currently preparing two drilling rigs and a small fleet of ships in its Alaska efforts, said Simon Henry, its chief financial officer on Thursday.
Marketing and refining, coupled with chemical sales, showed stronger improvements, on the other hand, earning $2.6 billion altogether, up from $1.6 billion during the same period last year. Shell added that all regions showed that refining profits margins improved.
Because of oversupply, refining, which has been for most companies a struggling business, has improved in recent months due to crude oil’s lower prices which is used in the process and has a fairly strong demand.
Shell’s chief executive, Ben van Beurden, said that despite being in a clearly tough industry environment, the company continues to take actions to further improve its competitive performance.
Van Beurden further said that the company sold around $2 billion nonstrategic assets during this year. Some of the assets sold included on-shore oil properties in Nigeria that remain open to oil theft and sabotage. The company also sold off 185 gas stations in the U.S.
Van Beurden, who since the beginning of last year became chief executive, is focused on offloading marginal assets like some marketing and refining networks and the onshore fields in Nigeria to move to higher profit businesses like liquefied gas and deep water production as well as exploration in the Gulf of Mexico among other places.
Its offer to purchase BG in April was one of its most important moves, which would see Shell conclude its biggest deal in its history, by far.
BG will help bolster Shell’s exploration and production unit, while Shell would provide its much bigger capital resources & development expertise. BG should also help Shell bolster its leading position in producing also distributing liquefied natural gas.
MT4 Chart: Shell
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