“Today’s oil price downturn could last for several years, and Shell’s planning assumptions reflect today’s market realities”, the oil major said in today’s statement.
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Royal Dutch Shell’s second quarter net income dropped 25% to $3.4 billion compared with $5.1 billion for the same quarter a year ago.
Royal Dutch Shell led the sector higher, rising almost 5 percent after the company said it would axe 6,500 jobs this year and step up spending cuts.
Shell believes that the oil prices will recover to $90 per barrel by 2020, which will make its acquisition deal of BG Group and drilling plan in Artic more lucrative.
A string of other energy companies have announced plans this year to cut investments and jobs due to the slump in oil prices. Brent crude futures rose 0.6% to $53.76 per barrel.
The BG purchase would be accretive to cash flow at $67 a barrel in 2016, according to the CEO, who said the deal works even at the current oil price.
“Shell is highlighting the lower for longer oil price scenario and setting up their business to deal with that”, said Aneek Haq, head of oil and gas at Exane BNP Paribas in London.
“Shell’s move of cutting jobs and reducing capex has pleased investors as it’s a good way of maintaining a strong dividend culture”, Jawaid Afsar, senior trader at Securequity, said.
“This [the fall in profit] is more or less only driven by the lower oil price in the market”, said the chief executive Helge Lund, adding that he was “not disappointed” with the result given the tough operating environment in the oil industry.
It also expects US$30 billion of asset sales between 2016 and 2018, on top of a total of US$20 billion in disposals for 2014 and 2015 combined.
Although Shell would not provide specific details on which assets it would target, the ageing North Sea basin, whose production has sharply declined since its 1990s peak, is likely to be closely scrutinized.
Shell also announced plans to sell a 33% stake in Japan’s Showa Shell Sekiyu for $1.4 billion.
“We’re taking a prudent approach, pulling on powerful financial levers to manage through this downturn, always making sure we have the capacity to pay attractive dividends for shareholders”. The results beat expectations of US$3.18 billion, according to an analyst consensus provided by the company.
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The increased production was fueled by output more than doubling in Brazil and at the massive Queensland Curtis liquefied natural gas project in Australia, known as QCLNG-two of the main drivers for Shell’s $73 billion takeover of the company.
