Shell posts weaker than expected fourth quarter earnings

Shell reported an 8% drop in full-year profits on a current cost of supplies basis to reach $3.53bn, although net income attributable to shareholders was higher by 136% to $4.6bn.

On the other hand, fourth quarter CCS earnings excluding identified items on the other hand rose 14% to $1.8bn (consensus: $2.8bn), driving a rise in earnings per share of 27% to 19 cents.

Shell explained that CCS profits ex items took a $0.5bn hit from charges linked to deferred tax reassessments.

A weaker Australian dollar led the explorer to book a $763m charge at its integrated gas business, which was partially compensated for by gains in refining that lowered the total provision to $0.5bn.

In parallel, operating cash flows for all of 2016 fell 31% to $20.62bn, although over the last three months of the year they jumped 69% to $9.17bn.

Commenting on the results, Shell chief Ben van Beurden said: "Production and LNG volumes included delivery from new projects, with ramp-up continuing in 2017 and 2018. Meanwhile we are operating the company at an underlying cost level that is $10bn lower than Shell and BG combined only 24 months ago. We are gaining momentum on divestments, with some $15bn completed in 2016, announced, or in progress, and we are on track to complete our overall $30bn divestment programme as planned.

"Looking ahead, we will further focus the portfolio and strengthen the company’s financial framework in 2017. Our strategy is starting to pay off and in 2017 we will be investing around $25bn in high quality, resilient projects. I’m confident 2017 will be another year of progress for Shell to become a world-class investment."

Van Beurden added also highlighted how the oil giant´s free cash flow had more than covered the cash dividend for a second consecutive quarter in the three months to December.

Capital spending in 2016 was a less-than-expected $26.9bn, management said it would come down to roughly $25.0bn in 2017, towards the lower end of $25.0bn to $30.0bn range projected until 2020.

Following the oil major's latest set of financials, analysts at Morgan Stanley reiterated their 'Overweight' stance and 2,750p target price on the company's A shares.

While Shell's depreciation, depletion and amortisation charges increased more sharply than they had anticipated, by $370m quarter-on-quarter, they pointed out how the company's cash flows were back at their best levels since the third quarter of 2014, while net debt had declined by $4.5bn and another $5.0bn disposals were coming soon.

Indeed, Shell's finance chief later said the company was nearing deals to sell $5.0bn of assets and selectively increasing tight oil output Stateside.

Morgan Stanley also described the firm's level of oil and gas production of 3.9m barrels of oil equivalents a day as "strong" (Morgan Stanley: 3.7m boe/d).

The quarterly dividend was kept at 47 cents, making for a full-year payout of $1.88, unchanged from the 2015 level.