LONDON (Alliance News) - Royal Dutch Shell PLC on Thursday reported a USD1.7 billion drop in earnings in the second quarter of 2015, as its upstream division continued to be hampered by lower oil prices, compounded by a fall in production.
The FTSE 100-listed oil and gas company also reaffirmed its commitment to its dividend alongside a share buyback as its merger with BG Group PLC continues as planned. Shell has also sold a significant stake in an downstream business in Japan.
Shell reported current cost of supply earnings of USD3.4 billion in the second quarter of 2015, down from USD5.1 billion a year before, as revenue fell to USD73.95 billion from USD115.27 billion after being hit by lower oil prices.
Earnings before exceptional items came in at USD3.8 billion in the second quarter, down from USD6.1 billion a year before, whilst pretax profit followed suit and fell to USD5.57 billion from USD9.12 billion.
Those exceptional items totalled USD474 million in the quarter, down from USD979 million a year earlier. The items comprised of USD263 million to its upstream division and USD215 million to downstream operations.
Shell said its downstream segment contributed "strong" earnings in the quarter but said the upstream unit continued to be hit by lower oil prices and a fall in production.
Production fell 11% year-on-year in the second quarter to 2.73 million barrels of oil equivalent per day, whilst liquefied natural gas sales were down 9%. However, sales of oil products were up 1% year-on-year.
Cashflow from operating activities came in at USD6.1 billion in the quarter, down from USD8.6 billion a year earlier.
In an earlier statement Thursday, Shell said its plans to pay a full-year dividend of USD1.88 per share in 2015 and at least that for 2016 remains unchanged and also said it will carry out a USD25.0 billion share buyback between 2017 and 2020 as planned.
Shell will pay an interim dividend for the second quarter of 2015 of USD0.47 per share.
Shell said it is planning for a "prolonged downturn" in the market caused by lower oil prices and said its operating costs will fall by around USD4.0 billion in 2015, which will be a reduction of about 10%, which includes 6,500 job cuts.
Its capital expenditure in 2015 will total USD7.0 billion, which will be down 20% year-on-year. The company said further cost reductions are expected throughout 2016.
"Shell's integrated business and our performance drive are helping to mitigate the impact of low oil prices on our bottom line," said Chief Executive Ben van Beurden.
"As our results today show, we're successfully reducing our capital spending and operating costs, and delivering a competitive performance in today's oil market downturn," he added.
Shell's USD47 billion mega-merger with BG Group also remains on track, which will form a new company that will more profitable, said Shell.
In a later statement Thursday, Shell said it has sold a 33.24% stake in Showa Shell Sekiyu KK for around USD1.40 billion to Idemitsu. Shell said the sale is consistent with its strategy to concentrate its downstream footprint and to reduce the number of assets it holds.
Shell will retain a 1.8% stake in the company and the deal is the latest divestmwent in the downstream sector following the sale of downstream businesses in Italy, Australia, the UK, Denmark, Norway and France. The deal is expected to be completed in 2016.
"We will re-shape the company once this transaction is complete. This will include reduced exploration spend, a fresh look at capital allocation in longer term plays, and asset sales spanning upstream and downstream. This should concentrate our portfolio into fewer, higher value positions, where we can apply our know-how with better economy of scale. In essence, we 'grow to simplify'," added van Beurden.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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