AfterBPreported its third-quarter results earlier this week, today it was Royal DutchShells(LSE: RDSB) turn to reveal how much damage the low oil price has done to profits.
Shell slumped to a third-quarter pre-tax loss of $9.1bn after writing down the value of several projects that are no longer economically viable. The group booked $7.9bn of exceptional items and the post-tax loss amounted to $7.4bn.
Adjusted net income, which excludes the effect of exceptional items came in at $1.8bn. Analysts were expecting the company to report adjusted net income of $2.9bn. Revenue crashed from $107.9bn a year ago to just $68.7bn for the three months to the end of September.
Overall, Shells $9.1bn pre-tax loss is a full $17.2bn below the $8.1bn profit reported for the third quarter of last year.
Shell has done its best to warn investors that the companys third-quarter results were going to be difficult to swallow over the past few months.
City analysts had estimated that the companys decision to scrap its Arctic drilling programme would cost the groupup to $4.1bn in third-quarter losses. And earlier this week, Shell announced that it was taking a $2bn chargeafter deciding to cancel its Carmon Creek project in the Canadian oil sands.
Today, Shell revealed that the final cost of stopping its Arctic drilling programme would be $2.6bn. Still, its estimated that by pulling out of the Arctic Shell will save $1bn per annum in exploration costs.
Not time to give up
Despite the companys dismal set of results, Shell which is currently in the process of buying smaller peerBG is upbeat about the future.
Indeed, management announced today that the companys quarterly dividend payout would be maintained at 47 cents a share, and the BG acquisition was on track for completion during the first quarter of 2016.
Shells chief executive Ben van Beurden said that, when completed, the merger with BG willprovide a springboard back into profitability as took over the running of BGs deepwater and LNG projects.
Whats more, along with the acquisition of BG, Shell is aggressively cutting costs to remain competitive as the price of oil remains under pressure. The company is now living within its means, and cash generated from operations is covers spending.
Mr van Beurden highlighted this fact within todays results release, noting that Shells balance sheet gearing currently stands at 12.7%, similar toyearagolevels, despite a halving of oil prices. Both net investments and dividends have been covered by operating cash flow over the lastyear,when oil prices have averaged $60 per barrel.
The bottom line
So overall, while Shells headline figures might look disappointing, long-term investors shouldnt be concerned. Shell is living within its means, the companys hefty 7% dividend yield looks here to stay, and debt remains low.
Still, this is just aroughappraisal of Shell’s prospects. Before making a trading decision, you should conduct your ownresearch to see if the company in question is suitable for your portfolio and financial goals.
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