Royal Dutch Shell quarterly profit rose by almost a third, beating forecasts and adding to what has been a robust three months for European oil majors, who have yet to feel the full impact of a sharp drop in oil prices.
Europe’s biggest oil company by market value also said it had appointed former banker Charles Holliday as its chairman. Holliday, a former chairman of Bank of America, will take over from current chairman and former boss of Finnish mobile firm Nokia Jorma Ollila in 2015.
Shell’s adjusted net profit in the third quarter hit $5.8 billion, up 31 per cent on the same period a year ago, with the company maintaining its dividend as both upstream and downstream divisions delivered strong results. Earnings nevertheless declined from the second quarter of the year, mostly due to weaker oil prices.
Oil prices have slumped over the past four months by more than 20 per cent to a four-year low near $85 a barrel due to slowing global demand particularly in China and ample supplies, erasing billions from oil companies’ market value.
Benchmark Brent crude oil prices nevertheless averaged $103 a barrel in the third quarter. And as the recent decline was most pronounced in the weeks following the end of the third quarter that ended on September 30, oil companies have been spared for now pain that will impact fourth quarter results.
Strong refining margins as a result of the lower crude oil prices also helped profits. Shell’s downstream earnings in the third quarter doubled to $1.8 billion from a year earlier and were up one third from the second quarter.
“We’ve had a nice set of results. People underestimated the strength of the downstream environment in the third quarter both for refining margins and trading. The European oil companies got a decent amount of their profits from the segment,” said BMO analyst Iain Reid.
“The companies are at a sweet spot at the moment but are lowering expectations for the fourth quarter, when refining margins and oil prices are expected to decline,” he said.
“The recent decline in oil prices is part of the volatility in our industry,” chief executive Ben van Beurden said.
“It underlines the importance of our drive to get a tighter grip on performance management, keep a tight hold on costs and spending, and improve the balance between growth and returns.”
Shell’s oil and gas production in the quarter was 5 per cent lower than in the same quarter last year at 2.79 million billion barrels of oil equivalent per day, mostly due to the expiry of the Abu Dhabi gas exploration licence.
The Anglo-Dutch oil major has enjoyed a rapid recovery over the past year through asset disposals and the ramp up of production in the Gulf of Mexico and West Africa.
The decline in oil prices is stacking pressure on the majors’ efforts to protect earnings by cutting investment and operating expenses.
Shell is in a push to shed $15 billion in assets this year, which it has largely achieved. The company said it had divested in the third quarter a total of $1.6 billion in the upstream and $2 billion in the downstream.