London - Royal Dutch Shell’s first-quarter profit beat analysts’ estimates as better-than-expected earnings from oil refining and chemicals production countered crude prices at a 12-year low.
Profit adjusted for one-time items and inventory changes fell 58 percent to $1.6 billion, The Hague-based Shell said on Wednesday. That exceeded the $1.18 billion average estimate of 11 analysts surveyed by Bloomberg. The earnings include results from BG Group, which Shell bought in February.
Read: Shell profit plunges 87%
Chief Executive Officer Ben Van Beurden, who staked his reputation to buy BG, is now banking on those assets to help Shell ride out oil’s downturn and surpass competitors when prices rise again. The Anglo-Dutch company is using its refineries and chemical plants to counter declining earnings from crude and gas production. A similar strategy helped BP Plc and Total SA beat estimates last week.
Shell earned $2 billion from its downstream businesses, including refining, trading and chemicals, exceeding the $1.7 billion analysts’ estimate provided by the company. It lost $1.4 billion from oil production, matching estimates.
Debt burden
Van Beurden has trimmed spending, renegotiated contracts, eliminated thousands of jobs and sought to improve efficiency to weather the oil-market slump. Yet the acquisition of BG is driving up Shell’s debt gearing, which resulted in a credit-rating cut by Fitch Ratings in February. A downgrade can increase the cost of borrowing for companies.
The delivery of efficiency savings from the takeover will be “accelerated” and at a lower cost than originally set out, Van Beurden said in a statement. Capital investment in 2016 is “trending toward” $30 billion from previous guidance of $33 billion, 36 percent lower than Shell and BG’s combined investment in 2014, he said.
Brent crude, the global benchmark, sank to the lowest since 2004 in the quarter. Van Beurden pressed ahead with the $52 billion purchase of BG even as Brent dropped below $28 a barrel, adding oil and gas assets from Brazil to Kazakhstan and Australia and increasing Shell’s dominance of the liquefied natural gas market.
Oil and gas production, including output from BG’s assets, rose 16 percent in the first quarter to 3.66 million barrels of oil equivalent a day.
Crude has rallied since its low in January, rising above $45 as US production slows and major producers including Saudi Arabia study a possible cap on output. The increase in prices has pushed up Shell’s B shares 14 percent this year in London after a 31 percent decline in 2015. The stock is also the best performer among the world’s five biggest non-state oil companies, which include Exxon Mobil and Chevron.
BLOOMBERG