Shell Profit for the Quarter Beats Expectations

Royal Dutch Shell posted profit for the first quarter that beat expectations on Wall Street, as earnings were better than had been expected in chemicals production and oil refining, which helped offset the price of crude hitting a low of 12 years.

Profit adjusted for one-off items and changes in inventory dropped 58% to just over $1.6 billion, which exceeded the Wall Street estimate of $11.8 billion.

Shell, the largest oil producer in Europe, which borrowed in order to finance an acquisition of $52 billion for BG Group this past February, signaled it was cutting billions more capital investment expenses from its budget as a way to ensure it keeps paying its dividends without having debt increase any further.

Ben van Beurden the CEO staked his reputation on the acquisition of BG and is banking on the assets to help the company ride out the downturn in oil.

Shell, the Anglo-Dutch company made a promise to accelerate savings from its takeover as well as asset sales of $30 billion.

It leaned a great deal on chemical plants and refineries to help counteract the losses incurred from natural gas and oil productions, a strategy that has benefited both Total SA and BP as well.

BG contributed over 796,000 barrels per day to the quarterly Shell output of gas and oil which increased by 16% to over 3.66 million barrels daily.

However, it resulted in a loss of $1.4 billion as prices plunged. Shell earnings from downstream operations more than $2 billion. That included trading, chemicals and refining, which beat estimates by analysts. Liquefied natural gas sales were up over 25%.

Van Beurden renegotiated contracts, eliminated jobs in the thousands and sought improvement in efficiency to weather the slump in the oil market.

However, the BG acquisition is driving up the debt gearing of Shell, which has increased above the 26% mark from only 14% at the end of 2015.

Debut concerns have resulted in a cut in the credit rating by Fitch this past February, possibly increasing the cost of borrowing for Shell.

Delivering savings in efficiency from its takeover will end up being cheaper than was set out originally, said van Beurden. Capital investment during 2016 is trending toward the $30 billion mark for guidance previously of $33 billion, 36% less than the combined investment of BG and Shell during 2014.

Shell stock has increased more than 14% in 2016, after ending 2015 with a decline of 31%, making it the best amongst the world’s five large oil companies that are non-state.

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David Glass

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