Shares inRoyal Dutch Shell (LSE: RDSB) have jumped this morning after the companyreported its fourth quarter and full-year results. Shell is thelatest of the big US and European oil majors to report results for last year and is, so far, the only oil company that has met City expectations.
Shell reported a profit for the full year of $3.8bn, down 80% year-on-year. Earnings on a so-called current cost of supplies basis (CCS), the number closely followed by analysts and used by management for decisions about allocating resources and assessing performance, fell 57% in the final three months of last year to $1.8bn. Full-year CCS earnings were $3.8bn compared to $19bn for 2014, a decline of 80%.
And like most of its peers, Shells borrowing increased during 2015 as the company maintained its dividend policy and spending plans in the midst of falling oil prices.Gearing at the end of 2015 was 14% compared with 12.2% at the end of 2014.
Further cuts
Shells chief executive Ben van Beurden used todays results release to outline how the company is dealing with the low oil price and comment on Shells upcoming acquisition ofBG, which is expected to complete in a few weeks time.
Following completion, Shell will move to axesome 10,000 staff and direct contractor positions in 2015/16 across both companies.Capital investment for Shell and BG combined for the full year 2016 is expected to be $33bn, down some 45% from the peak of combined spending by the two groups. Shells capital spendingwas $28.9bn in 2015, $8.4bn lower than in 2014.The companys cash flow from operations, excluding working capital movements, was $24.3bn.
The group has also exited or postponed some investment decisions for this year to help it manage capital spending amid the oil decline. For2016,the company hasexited the Bab sour gas project in AbuDhabi and is postponing its final investment decisions on LNG Canada and Bonga South West in deep water Nigeria.
Further, Shells operating costs fell by $4.1bn during 2015 and costs are expected to fall by a further $3bn, or 7.3%, during 2016 including synergies from the BG acquisition. Shell/BGs operating costs this year are set to be a full 15% lower than their peak in 2014.
All of these actions are designed to protect cash flows, minimise borrowing and safeguardShells dividend payout. Indeed, Shells management reiterated today that the group is committed to its$1.88 per share dividend in 2016, as previously announced. At current levels, thats a yield of 9% for investors.
The bottom line
Shells shares have underperformed the wider oil and gas index this year amid concerns that the companys dividend yield isnt sustainable. However, based on todays figures, it looks as if the company can continue to maintain the payout for the foreseeable future even if prices remain at depressed levels.
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Rupert Hargreaves owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
