appealed for investors’ patience after announcing a 72 per cent drop in second-quarter earnings as continued weakness in oil and gas prices battered the Anglo-Dutch group.
The results were much worse than market expectations and added to the gloom hanging over the industry after weak numbers from BP and Statoil earlier in the week and a below $43 a barrel, the lowest level for three months.
ConocoPhillips and Total also announced steep drops in earnings on Thursday, although the latter’s was less precipitous than analysts had feared.
“The second quarter was incredibly challenging across the board,” said Iain Armstrong, analyst at Brewin Dolphin. “If oil prices don’t start improving in the third quarter the bears will start getting really aggressive again.”
Shell’s results were especially disappointing for investors because it was the first full quarter after completion of its £35bn . The addition of BG assets helped lift production 28 per cent to 3.5m barrels of oil equivalent per day. But this was more than offset by the weak market conditions in which those products were sold.
Shares in Shell were down 3.4 per cent at £19.75 on Thursday afternoon.
On a current cost of supplies basis — the measure most closely watched by analysts — second-quarter earnings were $1.05bn, down from $3.76bn in the same period last year. Analysts’ consensus forecast had been for $2.2bn.
Ben van Beurden, chief executive, admitted it was proving a difficult “transitional year” for Shell but insisted the group was making progress towards a more streamlined business that could deliver fresh growth in an era of lower oil prices.
He said the group was on track to cut costs by 20 per cent by the end of this year, compared with the combined operating costs of Shell and BG in 2014. This year’s planned capital expenditure of $29bn, meanwhile, would be 38 per cent less than the pair jointly invested as standalone companies in 2014.
The decision on Thursday to put on hold a multibillion-dollar liquefied national gas export facility in Lake Charles, Louisiana, was the latest example of the squeeze on spending.
A combination of low prices and the BG acquisition have caused Shell’s debt to equity ratio to more than double in the past year to 28.1 per cent and Simon Henry, chief financial officer, warned it could edge closer to the group’s self-declared upper limit of 30 per cent.
However, he said plans to raise $30bn from asset sales was progressing well, with 17 potential transactions worth $6bn-$8bn under way, two-thirds of them in the upstream exploration and production business.
Jon Rigby, analyst at UBS, attributed the “disappointing” results to “much worse” than expected cash flow of $2.29bn, down from $6.1bn a year ago.
Mr van Beurden said the big gap with market expectations reflected “a lot of noise and moving parts” caused by the integration with BG that had made it difficult for analysts to make accurate estimates. He said a cleaner picture of performance should emerge next year.
Shell remained committed to defending its dividend, he added, with the payout held steady at 47 cents in the second quarter.
Total reported a 30 per cent year-on-year fall in adjusted net income to $2.2bn, beating analysts’ consensus forecast for $1.89bn.
Marc Kofler at Jefferies described the results as “resilient”, aided by strong cost controls.
The French group said it was on course to exceed its target to cut costs by $2.4bn this year and aimed to generate $2bn from asset sales by the year end.
Shares in Total were up 1.3 per cent at €43.24 on Thursday afternoon.
ConocoPhillips, the largest pure exploration and production company in the energy sector, reported an adjusted net loss of $985m, or 79 cents a share, compared with a profit of $81m a year ago. Analysts’ consensus forecast had been for a loss of 61 cents a share.
The US group said its production exceeded expectations in the second quarter and raised its output target for the year. But pressure from weak prices caused it to trim its 2016 capital expenditure budget for the third time from $5.7bn to $5.5bn.
