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Shell cuts spending as profits fall

Do Not UseDo Not Use 4/05/2016
Shell flag © AP Shell flag

Royal Dutch Shell has said it will cut its spending by another 10% this year as it warned lower oil prices were continuing to affect its business.

The oil firm said it would reduce investment to $30bn from a planned $33bn, after coming under pressure from shareholders to cut costs.

Shell also said profits in the three months to March had fallen to $800m from $4.8bn a year earlier.

Oil prices have fallen sharply over the past 18 months.

On average, in the first three months of 2016 oil prices stood at about $35 a barrel, down from a peak of $115 a barrel in June 2014.

Excluding one-off items, Shell's preferred measure of profit, earnings fell to $1.6bn from $3.8bn in the quarter.

The company also warned that low oil and gas prices, significant maintenance at production sites and "substantial redundancy and restructuring charges" would hit second-quarter earnings.

'Strong start'

Profits from Shell's downstream business - which includes refining - fell to $2bn from $2.6bn a year earlier.

Meanwhile, losses at the upstream business, which includes exploration and production, widened to $1.4bn compared with $195m a year ago.

Shell chief executive Ben van Beurden said: "Downstream and integrated gas businesses are delivering strong results and underpinning our financial performance despite continued low oil and gas prices.

"We continue to reduce our spending levels, to capture cost opportunities and manage the financial framework in today's lower oil price environment.

Earlier this year Shell completed its $54bn takeover of BG Group.

Mr van Beurden said: "The combination with BG is off to a strong start, as a result of detailed forward planning before the completion of the transaction. This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost than we originally set out."

'Clearly unsustainable'

The oil major maintained its dividend at $0.47 per share. But Laith Khalaf, senior analyst at Hargreaves Lansdown, said Shell would have to change this before too long.

"The dividend now accounts for $2 for each $1 that Shell earns, which is clearly unsustainable in the long term," he said.

"The company will be hoping it gets bailed out by a recovery in oil and gas prices before it looks down and realises the ground it was running on has disappeared."

Shares in Shell closed down by 2.5% at 1710.5p.

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