Royal Dutch Shell (RDS-B, RDSB.L, RDSA.L, RDS-A) and peer BG Group Plc (BG.L, BRGYY.PK), which are in a deal to merge, announced Wednesday sharply lower profit forecast for fiscal 2015, amid the decreasing oil price scenario. It trimmed $4bn, or 10pc, from its operating costs during the year, announcing some 10,000 job cuts, and expects to save more once the merger with BG Group completes.
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Shell shareholders are expected to vote on the proposed deal on 27 January 2016 followed by BG shareholders’ vote the next day. Chief Executive Officer of the Royal Dutch Shell, Ben van Beurden, who confirmed the new business strategy, expressed satisfaction with “the momentum in the company to reduce costs and to improve competitiveness”.
Aberdeen Asset Management and Invesco Asset Management, two of Shell’s major shareholders, have said they will support its plan to buy BG even with crude’s fall.
The impact at Shell was visible in the sharp drop, as expected, in fourth-quarter earnings for Shell’s exploration and production arm to between $0.4 and $0.5 billion, compared with compared with $1.7 billion in the fourth quarter of 2014.
“Synergies from the BG combination will be in addition to that”, van Beurden said in the statement. Flexibility for further reductions is available and will be utilised should conditions warrant that.
Shell released its figures early to coincide with takeover target BG Group’s update.
As markets plunged across the globe Shell’s shares plummeted 5.5 per cent or 74.5p to 1294.95p yesterday and BG’s fell almost 3 per cent or 42.3p to 897p. The CCS earnings excluding identified items in Q4 of 2014 were 3.02 billion euros.
The oil price rout has had a dramatic effect on Shell, with every 10 USA dollar change in the price of crude having an impact of around 3 billion United States dollars (£2.1 billion) in earnings.
But BG also said it expected 2015 production volumes to have hit 704 000 barrels of oil equivalent per day, above its earlier forecasts, thanks to finds in Australia, Brazil and Norway coming on stream. “BG’s production is increasing 16% year-on -year and it is attractive to Shell for diversification”, he told the BBC.
Shell is slashing thousands of jobs, selling assets worth billions and exiting projects as oil prices plunge. Cash flow from operating activities in 4Q2015 should be $4.8-6.0 billion, with full-year cash flow estimated at $29.2-30.4 billion.
Shell had previously published guidance that its 2015 earnings would be around $10.9bn. Capital investment was slashed by $8 billion, or over 20%, last year, and the $33 billion the merged company expects to spend in 2016 is down 45%.
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Identified items for the fourth quarter 2015 are expected to be around a net charge of US$200mln to an immaterial gain, mainly reflecting gains on sale of assets and impairments and for the full year 2015 are expected to be a net charge of some US$6.8bn-US$7bn.
