Shell ready for more cost cuts as earnings fall 87 percent on weak oil prices

Thu Feb 4, 2016 7:21am EST
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By Karolin Schaps and Ron Bousso

LONDON (Reuters) - Royal Dutch Shell, Europe's largest oil company, reported its lowest annual income in over a decade on Thursday and said it would take further steps to cut costs to cope with weak oil prices if needed.

Shell, whose shareholders last week approved its takeover of rival BG Group, said 2015 income fell 87 percent to $1.94 billion, in line with analysts' estimates, as its oil and gas production unit took a big hit from slumping oil prices.

Shares in Shell, which offer a dividend yield of above 8 percent, were trading up 6.4 percent at 5.36 a.m. ET, outperforming the European oil and gas company index which was up 3.4 percent.

"Most divisions came in towards the top end of management's guidance range, which we view as positive," said Biraj Borkhataria, equity analyst at RBC Capital Markets.

Shell's earnings are the latest demonstration of how badly oil producers are suffering from a 75 percent fall in oil prices since mid-2014. The world's largest oil company, ExxonMobil, this week reported its smallest quarterly profit in more than a decade, while BP's 2015 loss was its biggest ever.

Norway's Statoil said on Thursday it would cut 2016 capital expenditure (capex) by $1.7 billion year on year, while U.S. producer ConocoPhilips reduced its quarterly dividend.

"Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that," Chief Executive Ben van Beurden said in a statement. Shell maintained its annual dividend payment of $1.88 per share.

Shell is reducing investment, cutting nearly 10,000 jobs and selling assets to cope with the downturn. The CEO told reporters he believed oil prices had reached, or were near, the bottom of the cycle, pointing to growing demand.   Continued...

Shell branding is seen at a petrol station in west London, January 29, 2015. REUTERS/Toby Melville