Shell Earnings Fall, Capex Falls Too
Royal Dutch Shell earnings in first quarter 2016 at current cost (CCS), excluding exceptionals, were $1.6bn, down 58% from $3.7bn in 1Q 2015. Low oil and gas prices were the main drag on results.
Shell in mid-February completed its acquisition of BG for $54,034mn – including $19,036mn cash and $34.05bn paid out as Shell shares. Thus BG was consolidated into Shell’s results for both February and March 2016, as Shell deemed the impact for the first half of February was immaterial.
Capital investment of the combined group in 2016 is trending toward $30bn, said Shell (compared to its previous guidance of $33bn) and so 36% less than the combined Shell/BG capex of $47bn in 2014.
CEO Ben van Beurden remarked: “We expect to absorb BG’s capital investment and operating expenses during 2016, with no net increase overall, compared with Shell stand alone in 2015.”
Finance chief Simon Henry said $1.5bn of the 2016 capex reduction was in exploration spending, but that project deferrals had also contributed. During the quarter, Shell was helped by first LNG at Chevron-operated Gorgon in Australia, but saw deferrals in 1Q 2016 of the Browse (Australia) and Abadi (Indonesia) LNG ventures in which it is a co-venturer.
Oil and gas production was 3.66mn boe/d in 1Q 2016, 16% higher year-on-year, with the impact of BG being an increase of 522,000 boe/d.
Finance chief Simon Henry acknowledged the cap on production at the Dutch Groningen field, because of earthquakes, represented a reduction year-on-year of 40,000 boe/d – although it was not clear if the figure was net to NAM (60% shareholder in the field) or Shell’s half interest in NAM. Exxon -- which holds the other 50% NAM stake - on Friday noted a year-on-year fall of 600mn ft3/d but again was unclear whether talking of its or NAM's share.
At 100% (including the state’s 40% equity) Groningen is capped at 27bn m3/yr in 2016, half the 2014 level of 54bn m3/yr, said Henry.
Henry told a press briefing that job losses of 750 in Shell/BG’s North Sea upstream (500 in Aberdeen, 250 in Norway) were all that are already announced but “that might not be enough” in future. “The activity will sustain the jobs”, he said, saying that costs must be reduced, urging greater integration of offshore infrastructure and more incentives to develop marginal oil and gas production. Apart from Shell’s interests in the BP-operated Clare Ridge and Schiehallion (largely oil) developments west of Shetland, the rest of the Shell-BG portfolio in the UK North Sea “is mature and for sale.”
CCS earnings, excluding exceptionals, chiefly broke down as $994mn for Integrated Gas (down 33%), $2.01bn for downstream (down 24%), but a loss of $1.44bn upstream (1Q 2015 loss: $195mn).
LNG production of 7.04mn metric tons was 14% higher than in 1Q 2015, thanks to the BG takeover and the latter’s ramp-up of Queensland Curtis LNG in Australia, but was partly offset by the expiry of Shell’s dividends from the Malaysia LNG Dua joint venture in May 2015.
LNG sales volumes of 12.29mn mt increased by 25% year-on-year, again boosted by BG.