Shell misses expectations as earnings plunge on oil, BG costs

Thu Jul 28, 2016 9:44am EDT
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By Karolin Schaps and Dmitry Zhdannikov

LONDON (Reuters) - Royal Dutch Shell (RDSa.L: Quote) missed quarterly profit expectations by more than $1 billion on Thursday after reporting a 72 percent plunge in earnings due to weak oil prices and high costs following its $54 billion takeover of BG Group.

Shell's second-quarter current cost of supplies - its definition of net income - was $1 billion, much lower than the $2.1 billion expected by analysts. They had expected a better performance at the upstream division, which lost $1.3 billion, compared with a $469 million deficit last year.

"Lower oil prices continue to be a significant challenge across the business, particularly in the upstream (sector)," said Chief Executive Ben van Beurden, who said last month he wanted Shell to be the best oil company for investor returns.

Oil averaged $39.59 a barrel in the second quarter, down from $55.84 a year earlier. Shell said it loses or gains around $5 billion with every $10 move in Brent crude prices LCOc1.

Shell also spent more than expected on corporate expenses, with some $250 million going on redundancy and restructuring charges following the BG deal.

The oil major is laying off some 12,500 workers over 2015-16.

Shell's London-listed "A" shares had their worst day in two months and were down 3.4 percent by 1304 GMT, compared with a 0.6 percent fall in the oil and gas companies index .

Shell rivals BP (BP.L: Quote) and Statoil (STL.OL: Quote) also reported worse-than-expected second-quarter results this week mainly because analysts' expectations on cost reductions had been too optimistic.   Continued...

Filled oil drums are seen at Royal Dutch Shell Plc's lubricants blending plant in the town of Torzhok, north-west of Tver, November 7, 2014. REUTERS/Sergei Karpukhin/File Photo