The Anglo-Dutch energy giant has warned shareholders of a massive drop in earnings as commodity prices continue to tumble. But the slump won't stop Shell from pursuing a multi-billion-euro mega-merger.
Royal Dutch Shell (RDS) warned shareholders on Wednesday to brace for a steep drop in profits for the last quarter of 2015 as plunging oil prices left a big dent in the company's bottom line.
The Anglo-Dutch energy giant said it expected fourth-quarter earnings to come in at $1.6-1.9 billion (1.5-1.7 billon euros), or some 40 percent lower than the same period a year before. Full-year earnings were estimated to total $10.4-10.7 billion, or 45 percent below 2014 levels.
'Please' despite pain
Despite the painful figures, CEO Ben van Beurden said he was "pleased with Shell's operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness."
Shell said it had decided to release the figures ahead of a vote next week on a proposed mega-merger with British BG Group. Van Beurden said RDS was determined to press ahead with the 47-billion-pound ($69.5 billion, 60.1 billion euros) deal, despite the bleak market outlook.
In fact, the merger is widely regarded as an effort to adapt to the new reality - especially as Brent crude, the benchmark for North Sea oil, slid to new 12-year lows on Wednesday, trading at under $28 a barrel. Adding BG to its portfolio would boost Shell's oil and gas reserves by 25 percent, and give it a leg up on the fast-growing liquefied natural gas (LNG) market.
"Bold, strategic moves shape our industry," van Beurden said. "The completion of the BG transaction, which we are expecting in a matter of weeks, will mark the start of a new chapter in Shell, to rejuvenate the company, and improve shareholder returns."
Refocus and reduce
However, the merger will come at a high price for the companies' workers. Shell said they would have to cut some 10,000 staff and contractor positions across both firms in 2015-2016 "as streamlining and integration continue."
Shell called the move part of a series of "impactful steps to refocus and reduce" spending. Combined capital investment for the two companies was expected to total $33 billion this year, close to half of what they spent at their peak in 2013.
To further trim its budget, Shell also said preparations were already "well advanced" for sales of $30 billion worth of assets in 2016-2018 - assuming the deal is completed.
European basic resources and energy share indexes slumped to their lowest levels in over 12 years on Wednesday. Oil and metals suffered the sharpest decline, scaring investors away from commodities stocks.
"We do not see any lasting potential for these sectors to outperform and believe that any recovery might be short-lived," UniCredit equity strategist Christian Stocker said in a statement.
pad/hg (AFP, Reuters)