Oil giant Shell has announced that it expects to report a near-halving in profits in the last three months of 2015 following the further slide in oil prices – just one week before shareholders meet to vote on its £33 billion merger with rival BG Group.
Shell said its underlying fourth-quarter earnings on a current cost of supplies basis would be between $1.6-1.9 billion, down from $3.26 billion a year ago.
Oil prices fell by another 24% in the fourth quarter, as global supplies continued to outstrip demand, further eroding oil companies’ upstream revenues.
However, BG, which also provided a short trading update on Wednesday ahead of its own shareholder meeting on the takeover deal next week, positively surprised investors by beating its 2015 production target.
The companies aim to have cut a combined 10,000 staff and contractor jobs by the end of this year and Shell said it could further cut combined capital investments below the $33 billion targeted for 2016.
Shell shareholders are set to cast their votes on the deal on Jan. 27, followed by BG investors the next day, the final hurdles to be cleared for the deal to proceed, one of the biggest energy sector acquisitions in the past decade.
Norway’s $790 billion sovereign wealth fund, which is the second and fifth-biggest investor in BG and Shell respectively, has said it would vote in favour of the merger.
Many of Shell and BG’s big shareholders have voiced support for the deal but a slump in oil prices below $30 a barrel has raised concerns that Shell may be overpaying for the smaller rival.
Edinburgh-based Standard Life is the only one of the major institutional investors in Shell to say that it will vote against the merger with BG. Shell said on Wednesday it expected the deal to go through within weeks.
Commenting on the trading update, Ben van Beurden, Chief Executive, Royal Dutch Shell, said: “Our drive to improve competitive performance is delivering at the bottom line. Operating costs have reduced by $4 billion, or around 10% in 2015, and we expects our costs to fall again in 2016, by a further $3 billion.
“Synergies from the BG combination will be in addition to that. Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue.”
Meanwhile, Shell is taking steps to reduce capital spending. Its capital investment in 2015 is expected to be $29 billion, a 20% reduction from 2014 levels. This has been delivered by efficiency improvements and more selectivity on new investments.
Capital investment for Shell and BG combined in 2016 is currently expected to be $33 billion, around a 45% reduction from combined spending, which peaked in 2013.
Meanwhile, Edinburgh-based oil explorer Cairn Energy has issued a bullish trading update ahead of its formal annual results on 15 March 2016 following recent confirmation of new oil field finds off Senegal.
Nearer to home, it said its Catcher and Kraken developments in the North Sea remain on track for first oil from 2017, with peak net targeted production to Cairn of ~22,500 boepd.
However, its planned exploration well on FEL 2/04 offshore West of Ireland has been deferred ‘pending discussions with partners and the Government of Ireland’.