LNG giant Royal Dutch Shell on Wednesday posted its first results since the multi-billion takeover of BG, revealing a sharp decline in its first-quarter profit on low oil, gas and LNG prices.
Shell’s first quarter earnings on a current cost of supplies (CCS) basis were $0.8 billion, down 83% as compared with $4.8 billion for the same quarter a year ago.
The company’s adjusted earnings, excluding one-off items such as proceeds from divestments, dropped 57 percent to $1.6 billion from $3.7 billion a year earlier, beating analysts’ expectations.
Shell’s CEO Ben van Beurden said the company is continuing to reduce its spending levels, as it manages the financial framework in the low oil price environment.
“The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction. This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out,” the CEO said.
“Putting all of this together, capital investment in 2016 is clearly trending toward $30 billion, compared to previous guidance of $33 billion, and some 36% lower than combined Shell and BG investment in 2014,” van Beurden said.
According to van Beurden, Shell expects to absorb BG’s capital investment and operating expenses during 2016, with no net increase overall, compared with Shell stand alone in 2015.
He added that Shell would continue to manage spend, through “dynamic decision-making across the organisation, taking advantage of opportunities from both the deflating market and the two companies coming together.”
During the quarter, Shell completed the acquisition of UK-based LNG player BG worth about $54 billion.
This includes cash of roughly $19 billion, and the “fair value ($34 billion) of 1,523.8 million shares issued in exchange for all BG shares,” Shell said.
The consolidation of BG resulted in an increase to first quarter 2016 cash flow from operating activities of $0.8 billion and an increase to CCS earnings attributable to shareholders excluding identified items of $0.2 billion, according to Shell.
Goodwill of about $9 billion was recognised on the acquisition, being the excess of the purchase consideration over the fair value of net assets acquired, Shell said.
Shell has said it plans to slash 2,800 jobs following the BG deal on top of 7,500 planned job cuts as the company is reducing costs in a low oil price environment.
LNG volumes rise
First quarter earning for Shell’s Integrated Gas segment, excluding a net charge of $89 million, were $994 million compared with $1,491 million a year ago.
Earnings were impacted by the decline in oil and gas prices, LNG price, and the Malaysia LNG Dua JVA expiry, according to Shell.
First quarter 2016 production was 833 thousand boe/d compared with 622 thousand boe/d a year ago.
LNG liquefaction volumes of 7.04 million tonnes increased by 14% compared with the same quarter a year ago, mainly reflecting the impact of the acquisition of BG, including an increase associated with the ramp-up of Queensland Curtis LNG in Australia, Shell said.
Shell’s LNG sales volumes rose by 25% to 12.29 million tonnes, due to the acquisition of BG.
The combined group’s equity LNG capacity is expected to be 44 mtpa in 2018, compared to Shell’s 26 mtpa in 2014.
LNG World News Staff