London: Royal Dutch Shell’s first-quarter profit beat analysts’ estimates as better-than-expected earnings from chemicals production countered oil 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.
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 and Total beat estimates last week.
Van Beurden has also trimmed spending, renegotiated contracts, eliminated thousands of jobs and sought to improve efficiency to weather the 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.
Brent crude, the global benchmark, slumped 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 has rallied since its low in January, rising above $45 as US crude 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 per cent this year in London after a 31 per cent 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.