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Shell to suffer profits plunge on oil price collapse

Screen Shot 2015-04-26 at 16.23.08An article by Christopher Williams published 26 April 2015 by The Sunday Telegraph

Shell to suffer profits plunge on oil price collapse

Dutch earthquake fears also trim gas production

Shell is expected to reveal this week that the collapse in the price of oil has wiped off two thirds of its first quarter profits.

The giant has been hit hard by the economic and geopolitical forces set against the price of oil, which at $65 per barrel costs little more than half as much as it did last summer, in spite of recent gains.

Analysts at JP Morgan said Shell is expected to report profits of £1.6bn, adjusted for one-off charges, compared with £4.8bn for the first three months of last year, when Brent crude was comfortably above $100 per barrel.

The success of the US shale industry is behind the drop, causing a global glut as other nations have maintained production regardless of less export demand.

Shell’s profit slump will be revealed as it nevertheless aims to dramatically expand via its £47bn takeover of BG Group. The move, the biggest oil deal in UK corporate history, has sparked speculation that there could be a new wave of consolidation among the world’s major oil companies.

Shell’s blockbuster bid came last month with BG shares down by more than a third since last summer. It is now due to be scrutinised by regulators and expected to complete next year.

The impact of falling oil prices on Shell’s first quarter is expected to be heavier than in the fourth quarter of last year, when underlying profits were down by 44pc on the previous quarter and up 12pc on the end of 2013.

JP Morgan said factors such as Shell’s significant role in the Canadian oil sands market, where recovery costs are higher than for normal drilling, would add to the pressure on the company’s profits.

At the same time, production at Shell’s major Dutch gas field has fallen as a result of earthquake fears, the analysts added.

Shell chief executive Ben van Beurden has been repositioning the company to cope with the shifts in the industry and oil prices that are expected by most analysts to remain low throughout 2015.

Before bidding for BG, in January he slashed investment in new projects by $15bn over the next three years. Casualties of the cuts included the “commercially unfeasible” $6.5bn Al-Karaana project in Qatar.

Shell is due to report its first quarter results on Wednesday.

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