Poor results will not sour BG deal, says Shell

Royal Dutch Shell expects to report a near-halving in profits in the last three months of a year ago, following the further slide in oil prices, it said on Wednesday, a week before shareholders meet to vote on its $47bn deal to take over rival BG Group.

Shell said it expected full-year core earnings of $10.4bn-10.7bn which would be below the consensus market forecast of $10.8 billion.

The financial information in the announcement, the company however declared, “is preliminary and subject to further internal and external review before the publication of Shell’s fourth quarter 2015 and full year 2015 figures”.

In 2016 it faces even more challenges, as Brent crude dropped just below $30 per barrel this week and Iran is ramping up its own oil production, adding to the global oil glut, now that it is free from Western sanctions that have crippled its energy industry.

The price of oil has fallen nearly 60 per cent since the start of June.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. However, recent estimates are still higher than the consensus net profit forecast of $1.4 billion. In January 2014, Royal Dutch Shell plc completed the acquisition of Repsol S.A.’s liquefied natural gas (LNG) portfolio outside North America.

Shell and BG are the first of the big oil companies to announce their results for 2015. “The surprise is how strong the integrated gas business has been”.

The biggest fallers in the FTSE 100 Index were Glencore down 7.8p at 71.2p, Anglo American down 17.8p at 221.1p, BHP Billiton down 46.2p at 580.9p and Royal Dutch Shell down 92p to 1277.5p. He said the BG deal would “mark the start of a new chapter in Shell, to rejuvenate the company and improve shareholder returns”.

“Our excellent operational performance in 2015 is expected to deliver results in line with, or ahead of, our guidance for the year”, said BG chief executive Helge Lund.

Shell also says that by acquiring BG, it would be able to substantially reduce costs and the size of the work force at both companies. It has already said it will cut 10,000 staff if the deal with BG Group goes ahead and it said synergies though its tie-up with BG would be on top of the cost savings already outlined.

A spokesperson for Shell said the company was positioning itself for a sustained downturn by cutting capital investments.

Standard Life Investments is the only Shell holder that has so far publicly said it will vote against the combination because the acquisition is “value destructive”. The multinational had initially expected to produce around 690,000 barrels of oil equivalent per day (BOE/D) previous year. It reached 12.6 per cent on December 21. Finally, Jefferies Group restated a “buy” rating and set a GBX 2,040 ($29.11) price target on shares of Royal Dutch Shell Plc in a report on Tuesday, January 12th.

Shell investors will vote on the deal next Wednesday and BG shareholders will vote the following day.