Shell profit drops 44%, matching estimates, as crude tumbles

LONDON (BLOOMBERG) - Royal Dutch Shell Plc, which is on the brink of completing the oil industry's largest deal in a decade, reported fourth-quarter profit that matched analyst estimates. The shares rose the most in almost seven years amid a rebound in global stocks and a selloff in the dollar.

Profit adjusted for one-time items and inventory changes shrank 44 per cent to US$1.8 billion (S$2.5 billion), near the midpoint of the preliminary US$1.6 billion-to-US$1.9 billion range it gave last month, Shell said Thursday.

Crude's collapse has slashed earnings for oil companies from Exxon Mobil Corp. to BP Plc, leaving them struggling to strike a balance between investing for growth and making shareholder payouts. The Hague-based Shell is betting its US$50 billion acquisition of BG Group Plc will help it maintain dividends and increase oil and gas production at a time when cash flow is shrinking. 

"BG now becomes important for Shell because it helps them grow and high-grade their assets," Brendan Warn, a London-based analyst at BMO Capital Markets, said by phone. "It gives Shell the opportunity to divest their high-cost assets and focus on BG's high-margin projects."

Shell's shareholders last month approved its plan to buy BG, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan, despite the 40 per cent tumble in crude prices since the deal was announced. The average price of benchmark Brent in the fourth quarter was US$44.69 a barrel, the lowest since 2004. Average prices have lost more than US$10 this quarter, making it harder for Shell to deliver on its promises to investors.

The company's B shares, the class of stock used in the BG deal, advanced as much as 6.8 per cent in London, the biggest intraday gain since 2009. The stock traded up 6.6 per cent at 1,533 pence as of 11:51 a.m. local time, paring its decline this year to 0.7 per cent. The 61-member Bloomberg World Oil & Gas Index has dropped 5.4 per cent in the period.  The slump in crude has hit earnings of companies around the world.