Shell profits plung to £1.1bn as oil price woes continue

Shell has seen profits plummet.

Shell has seen profits plummet. - Credit: PA

Shell’s first-quarter profits plummeted 58% to 1.6 billion US dollars (£1.1 billion) as the falling oil price continues to hammer the sector.

Shell’s downstream business, which includes refining, saw profits fall from 2.65 billion US dollars (£1.8 billion) billion to 2 billion US dollars (£1.3 billion) compared with the same period last year.

Losses at the upstream business, which includes exploration and production, came in at 1.4 billion US dollars (£963 million).

Earnings on a current cost of supplies (CCS) basis were 800 million US dollars (£550 million), compared with 4.8 billion US dollars (£3.3 billion) last year.

However, the results beat analyst expectations for the oil giant and Shell’s chief executive Ben van Beurden said: “Downstream and Integrated Gas businesses are delivering strong results and underpinning our financial performance despite continued low oil and gas prices.

“We continue to reduce our spending levels, to capture cost opportunities and manage the financial framework in today’s lower oil price environment.

“The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction. This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out.”

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The cost of crude has collapsed by more than 70% since a peak of around 115 US dollars a barrel in the summer of 2014, and the company announced last month that it was pushing ahead with plans to cut jobs and close offices in the wake of the plunging oil price and its takeover of BG Group.

It said it may close three offices, including the former BG Group headquarters at Thames Valley Park, Reading; BG’s offices at Albyn Place, Aberdeen; and Shell’s Brabazon House office, Manchester.

It has also given workers at the Thames Valley site the option of applying for voluntary redundancy, while a separate voluntary severance programme has been rolled out to “some UK employees” because the oil price remains persistently low.

It said both the office closures and the redundancy programmes are subject to staff consultation.

Shell, which has a total UK workforce of about 7,500, employs approximately 800 people at Thames Valley Park, 300 at Albyn Place and 700 staff at Brabazon House, Manchester.

Some staff at Thames Valley Park will be moved to its headquarters in central London, while some employees at its Manchester site will be offered posts in the London office or the chance to work from home.

It said it will also transfer some workers at the Albyn Place to its Tullos office in Aberdeen.

The firm revealed last year that the impact of its mega-merger with BG Group - coupled with lower oil prices - would lead to 10,300 job losses.

It has already made 7,500 job cuts through an efficiency drive, with 2,800 jobs also being lost from its tie-up with BG Group.

Despite the results, Shell’s dividend is being maintained - at 0.47 US dollars (32p) per ordinary share and 0.94 US dollars (65p) per American Depositary Share - and analysts have raised doubts over whether the policy is sustainable.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Royal Dutch Shell has taken a dramatic hit to revenues, but continues to maintain its dividend despite the storm that has hit global commodity prices.

“The dividend now accounts for 2 dollars for each 1 dollar that Shell earns, which is clearly unsustainable in the long term. The company will be hoping it gets bailed out by a recovery in oil and gas prices before it looks down and realises the ground it was running on has disappeared.”