This morning’s results from Royal Dutch Shell didn’t offer up too many surprises given that CEO Ben Van Buerden gave investors a “heads up” at the end of January.
The company announced a 53% drop in profits to $10.7bn, pretty much in line with the announcement last month, and kept the dividend at $0.47c a share.
Since the shareholders have waved through the contentious deal with BG Group, despite increasing concerns that the slide in oil and gas prices has made the mathematics of the deal rather more difficult, given that they were predicated on average oil and gas prices of between $60 to $85 a barrel over the course of the next three years.
There was some dissent amongst some of the smaller shareholders that Shell would be better spending some of the money on R&D in renewables and green energy projects.
In the last year the company has taken write downs in excess of $7bn on its operations in Alaska, Ukraine, as well as the Carmon Creek tar sands venture in Canada as it looks to dispose of non-core assets and looks to take on Exxon Mobil in the liquefied natural gas space.
Along with the other oil majors the main focus of concern is the dividend policy as well as the risks of cutting expenditure too deep, and in the process curtailing its ability to react quickly to a turnaround in the oil price, as the supply and demand dynamics shift away from the current glut.
As far as the dividend policy is concerned Shell is better placed to keep it at current levels in the short term, given its better dividend cover, while its debt levels have been falling relative to its peers since the end of 2013, which suggests that for now the 9% yield is probably safe.
The bigger problem comes if oil prices remain at their current levels for a significant period of time, which could prompt some concern later on into 2016, particularly if margins continue to shrink.
Investors will also be hoping for more detail on the integration of BG Group into the Royal Dutch Shell architecture and the associated costs savings coming from that.
One thing is certain; Ben Van Buerden won’t want to go down in history as the first CEO to cut the dividend since 1945.
He will be hoping that BP CEO Bob Dudley’s optimism that oil prices will head back above $50 over the course of the next few months is borne out.
One thing that will help is continued US dollar weakness if last night’s oil price rebound is an arbiter of things to come. If that continues then we could well have seen the bottom in oil prices and a lot of energy sector CEO’s could start to breathe a little easier, as their share prices recover.
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