"Challenging" economic conditions see Shell profits halve

Anglo-Dutch energy giant Royal Dutch Shell has reported its profits halved in Q4 2019. Lower oil and gas prices combined with weaker refining and chemicals margins and "challenging" economic conditions contributed to the drop in profits, forcing the company to slow down its share buyback programme.

Shell said net income adjusted for cost of supply - the company's preferred profit measure - dropped to $2.9-billion (€2.63-billion) in the three months up to December 31 last year, compared to $5.7-billion (€5.18-billion) in the same period the previous year. Full-year earnings for 2019 were down 23% to $16.5-billion (€14.98-billion).

Share prices fell 3.3% in early London trading in response to the news.

The energy major said that it would now slow down the pace of investor payouts for its $25-billion (€22.7-billion) share buyback programme announced following the acquisition of BG Group in 2016. The original plan was to have the programme completed by the end of 2020. Now, Shell says it will but back $1-billion (€907-million) of shares in the next quarter, compared with the $2.8-billion (€2.54-billion) in Q4 2019.

Shell has already repurchased $15-billion (€13.6-billion) of shares, but CEO Ben van Beurden said that the pace of the buyback programme "remains subject to macro conditions and further debt reduction" citing a "challenging" economy.

There was a 47% fall in earnings at the company's gas business - down to $1.9-billion (€1.7-billion) after higher trading activity failed to offset lower prices. 

Shell's exploration and production division reported a loss of $787-million (€714-million) in Q4 2019 compared with a profit of $1.6-billion (€1.45-billion) in Q4 2018 as a result of the fall in oil prices, cost of decommissioning and write-offs in connection with its business in Albania.

Oil production in Q4, however, remained in line with the same period a year ago at around 2.8 million equivalent a day. 

The downstream refining and chemicals business reported a drop in earnings of 64% to a little over $1-billion as weaker margins bit into profits.

Free cash flow, which allows the company to purchase dividends and buy back shares fell to $5.4-billion (€4.9-billion) from $16.7-billion (€15.15-billion).

Shell has, in recent years, cut costs and spending and sold off around $30-billion (€27.2-billion) of assets in order to shrink its debt burden.

The company had previously noted that it needed prices of Brent crude oil to be above $65 a barrel in 2019 and $66 in 2020 to meet its debt reduction targets and keep up the pace of share repurchases. Prices have, for the most part, been lower than since June despite a rise last month.

Several oil and gas companies, including BP, Chevron, Repsol and Equinor, have written down billions of dollars of US shale assets in the past months. Rising gas production in the US, largely a byproduct of the boom in shale oil, has pushed down prices to a multi-decade low.

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