Shell’s earnings to halve amid plunging oil prices

Royal Dutch Shell chief Ben van Beurden. Picture: Ben Stansall/AFP/Getty Images
Royal Dutch Shell chief Ben van Beurden. Picture: Ben Stansall/AFP/Getty Images
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Oil giant Shell said earnings are expected to more than halve for 2015 after being hammered by plunging crude prices.

The group, which is weeks away from completing a $55 billion (£39bn) deal to buy BG Group, said it expects full-year underlying earnings to tumble to between $10.4bn and $10.7bn.

This is slightly below expectations in the City and marks a sharp fall on the $22.56bn reported for 2014.

Shell chief executive Ben van Beurden said the deal with BG Group will mark the start of a “new chapter in Shell, to rejuvenate the company”.

He added the group has been slashing costs to bolster its bottom line, stripping out $4bn from the business in 2015 and planning to cut a further $3bn this year.

The business has already confirmed that thousands of jobs will be axed as part of the BG tie-up and it is planning to offload $30bn of assets.

READ MORE: Shell to slash almost 3,000 jobs in BG tie-up

There have been growing investor fears over the deal following the recent hefty falls in oil prices amid over-supply and falling demand as the world economy slows.

The cost of crude slumped below $28 a barrel at one stage earlier this week, and the International Energy Agency (IEA) yesterday warned that the oil glut and unseasonably warm weather could see the energy market “drown in over-supply” in 2016. It comes after Opec said last month that it would not cut output to halt the price slide despite global over-supply.

“Although we do not formally forecast Opec oil production, in a scenario whereby Iran adds 600,000 barrels per day (bpd) to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016,” the IEA said in its latest review of the health of the energy market.

It added: “So the answer to our question is an emphatic yes. It [the price] could go lower.”

Shell has priced its acquisition of BG based on oil prices rising sharply from their current low levels – predicting a bounce back of more than 35 per cent this year and further rises next year. In a move to appease worried investors, Shell confirmed shareholders will share out $27bn in dividends for 2015 and 2016.

The deal, which has already cleared the regulatory hurdles, requires the support of 50 per cent of Shell shareholders and 75 per cent of BG shareholders. They will vote on 27 January and if the deal is given the green light, it is set to complete by 15 February.

The slump in 2015 earnings comes after Shell said fourth-quarter earnings are expected to nearly halve to between $1.6bn and $1.9bn. This is down from $3.26bn a year earlier and slightly below analyst expectations.

Despite the hit to earnings last year, van Beurden said he was “pleased with Shell’s operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness”.

The oil price rout has had a dramatic effect on Shell, with every $10 change in the price of crude having an impact of about $3bn in earnings. Shell will report full-year results on 4 February.