Shell Hardens on Massive Earnings Beat

Europe's biggest oil company Shell (RDS.B) posted the oil sector's standout third-quarter results, booking a sharper-than-forecast increase in profit and production, boosted by its acquisition of BG.


Net profit for the quarter, on a current cost of supplies basis and excluding one-time items, rose to $2.8 billion, up 18% on the same period last year and well ahead of the consensus expectation of about $1.7 billion. Earnings per share were 35 cents.

Shell's most commonly traded B shares climbed 3.3% in early trading on Tuesday to 2,184 pence (26.76).

The strong results provide a measure of justification for CEO Ben van Beurden's $54 billion gamble on the acquisition of gas group BG, which was finalized earlier this year. That deal boosted Shell's output, particularly in Australia and Latin America, while integration of the BG operations and the resultant cost cutting is ahead of schedule, according to the company.  

"Shell delivered better results this quarter, reflecting strong operational and cost performance," said Van Beurden in a statement. "But lower oil prices continue to be a significant challenge across the business and the outlook remains uncertain."

Shell's results buck the trend of a difficult third quarter for European oil companies, which have been hurt by lower oil prices and lower-than-expected output. Brent crude traded at an average of $45.90 in the third quarter, marginally higher than the previous quarter's prices but down on the average of $50.50 in the third quarter of 2015.

Separately, on Tuesday BP (BP) reported a 49% decline in third-quarter profit on disappointing output, though it beat analysts' estimates largely due to a tax credit.

Shell's upstream production of oil and gas climbed 25% in the third quarter to just under 3.6 billion barrels of oil equivalent, boosted by 806,000 barrels of output from former BG assets.


The increased production pushed Shell's upstream operations to a slim $4 million profit, up from a $1.3 billion loss in the second quarter of this year and a $582 million loss in the third quarter of 2015. Downstream profit for the third quarter was $2.08 billion, below last year's $2.6 billion figure but up on last quarter's $1.8 billion.    

Shell said that capital investment for 2017 is expected to be around $25 billion, at the low end of Shell's forecast $25 billion to $30 billion range.

Net debt stood at $77.8 billion at the end of September, up from $23.7 billion this time last year as a result of loans taken on to finance the acquisition of BG.  The net debt to equity ratio  rose to 29.2% at the end of the third quarter, up from 12.7% in 2015 .

Shell has promised to sell $30 billion of assets, including between $6 billion and $8 billion this year, to reduce its debt. The company has made a slow start, with only $1.7 billion of sales completed this year, though a total of about $5 billion of deals have been agreed, including this month's $1 billion agreement to sell Canadian shale assets to Tourmaline Oil. (TRMLF)

Shell said it would pay a third-quarter dividend of 47 cents per A and B share, unchanged from last year.

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