Royal Dutch Shell’s net profit collapsed in the second quarter on low oil prices, weak refining margins and production outages, the British energy giant said Thursday. Net profits sank 71 percent to $1.175 billion in the three months to June, compared with $3.986 billion in the same part of 2015, Shell announced in a results statement. Profit on a current cost-of-supplies (CCS) basis — which strips out changes to the value of its oil and gas inventories — slid 72 percent to $1.045 billion in the reporting period.
That was almost half of market expectations for CCS profit of $2.16 billion, according to Bloomberg News. A 25-percent rebound in Brent oil prices last quarter provided some relief, but the market hit three-month lows on Thursday as rising US inventories sparked resurgent supply glut fears. “Downstream and integrated gas businesses contributed strongly to the results, alongside Shell’s self-help programme,” said chief executive Ben van Beurden. “However, lower oil prices continue to be a significant challenge across the business, particularly in the upstream.”
The downstream business includes refining, marketing and distribution, while upstream comprises exploration and production. Second-quarter production stood at 3.51 million barrels of oil equivalent a day, which missed forecasts of 3.63 million as output was hit by shutdowns in Canada and Nigeria. The recent slump in oil prices has pushed energy groups worldwide to slash spending and jobs, and sell off assets. “We are managing the company through the down-cycle by reducing costs, by delivering on lower and more predictable investment levels, executing our asset sales plans and starting up profitable new projects,” added van Beurden.
“At the same time, integration of Shell and BG is making strong progress, and our operating performance continues to further improve.” The company completed in February a £47-billion takeover of BG Group, in a deal aimed at strengthening Shell’s position in the liquefied natural gas (LNG) market. “Our investment plans and portfolio actions are focused firmly on reshaping Shell into a world-class investment case through stronger, sustained and growing free cash flow per share,” said van Beurden. In late morning deals, Shell’s ‘B’ shares sank 3.73 percent to 2,026.50 pence on London’s FTSE 100 index, which fell 0.12 percent to 6,742 points.
“Shell followed BP’s lead from earlier in the week to post a wince-worthy 72-percent slide in profits thanks to the continued weakness of oil and gas prices,” said Spreadex analyst Connor Campbell. “This not only sent Shell (shares) 4.0 percent lower but pushed the rest of its sector into the red as well.”
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