Shell Profit Hit Hard by Low Oil Prices -- 2nd Update

By Selina Williams 

LONDON-- Royal Dutch Shell PLC on Thursday reported a sharp drop in profit as lower oil and gas prices took a further toll in what is turning out to be another dismal quarter for the sector.

While Shell's oil and natural gas production rose by nearly a third year-on-year in the second quarter to 3.51 million barrels of oil equivalent a day, due largely to additional volumes from newly acquired BG Group, the prices it received were around a third lower. The quarter was the first full one that included BG, which Shell bought in a roughly $50 billion acquisition that was completed in February.

"Downstream and integrated gas businesses contributed strongly to the results, alongside Shell's self-help program. However, lower oil prices continue to be a significant challenge across the business, particularly in the upstream," said Shell Chief Executive Ben van Beurden.

Shares in the company fell more than 3% Thursday morning.

Shell's results highlight what is turning out to be another grim quarter for oil company earnings, as the sector continues to grapple with the collapse in crude prices to below $45 a barrel from over $100 a barrel in mid-2014. Companies have slashed billions of dollars from costs and shed thousands of jobs, but earnings are still in the doldrums.

Shell rival BP PLC reported a second-quarter loss on Tuesday, underperforming analysts' expectations.

Shell said its quarterly profit on a current cost-of-supplies basis--a measure similar to the net income that U.S. oil companies report--was $239 million, down 93% from $3.36 billion a year earlier. Its adjusted earnings, stripping out one-off items such as proceeds from divestments, fell to $1.05 billion from $3.76 billion a year earlier.

A Wall Street Journal poll of seven analysts forecast adjusted earnings of $2.27 billion for the quarter.

Revenue in the second quarter fell 19% to $58.42 billion. Cash flow from operating activities fell 62% to $2.29 billion.

Shell's division that explores, develops and produces oil--known as upstream--was the worst-performing unit of the company. Losses in the unit, excluding one-off items, widened to $1.33 billion from $469 million a year earlier, due to lower oil and gas prices.

Refining profits fell due to weaker margins. Integrated gas, which includes big liquefied natural gas developments, was also down due to lower LNG prices, which are linked to oil.

Gearing--a measure of the extent to which a company's operations are funded by debt--rose sharply to 28.1% at the end of the second quarter, compared with 12.7% in the second quarter of 2015, reflecting the impact of the BG acquisition, Shell said.

(END) Dow Jones Newswires

July 28, 2016 03:55 ET (07:55 GMT)

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