Shell misses Q4 profits forecasts and slashes $15bn from spending

Oil major Shell said it is looking to reduce costs and lower investment in 2015 in response to the collapse in crude prices, cutting $15bn from its potential spending over the next three years.

The comments came as the firm missed analysts’ expectations with its fourth-quarter profits, driven by a poor results from its upstream division.

Earnings on a current cost of supplies (CCS) basis of $4.2bn in the fourth quarter of 2014, up from $2.2bn the year before. However, when excluding certain items like tax adjustments from asset sales, CCS earnings improved by just 12% year-on-year to $3.3bn, well below the consensus forecast of $4.2bn.

In upstream, Shell said that benefits from increased high-margin liquids production volumes, improved operational performance and lower well write-offs were “more than offset by lower oil prices”.

For the full 2014 financial year, adjusted CCS earnings totalled $22.6bn, up 16% from $19.4bn in 2013.

The company declared a fourth-quarter dividend of 47 cents per share, up 4% year-on-year, and said it expects to keep the payout stable for the first quarter of 2015.

"Prudent approach"

“Weaker oil prices underline that there's a lot more to do”

Shell assured investors that it was taking a “prudent approach” amid a volatile time for the industry and said it is deferring spending in many areas without compromising on growth opportunities.

Capital investment will be lower than 2014’s levels, and the company is “considering further reductions to capital spending should the evolving market outlook warrant that step”.

Shell said investment levels are “under severe pressure” in the near term, but lower prices have created opportunities to reduce costs and take costs out of the supply chain. This has presented the potential for “multi-billion dollar savings”, it said.

"Our strategy is delivering, but we're not complacent,” chief executive Ben van Beurden said. “Weaker oil prices underline that there's a lot more to do. The three themes of financial performance, capital efficiency and project delivery will remain as Shell's priorities in 2015,” he said.

Shell paid out $15bn in dividends and share buybacks in 2014, but said it had slowed its repurchase programme by the end of the year to conserve cash. “Near-term oil prices will dictate the buyback pace,” it said.

Van Beurden added: ”We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices. Shell is taking structured decisions to balance growth and returns.