Shareholders in Royal Dutch Shell will be celebrating a solid rebound in profits in this morning’s Q1 results, after a disappointing start to the year, with the share price one of the biggest underperformers on the FTSE100 year to date.

The low oil price has hammered margins in the oil and gas sector in the past few years, but for Shell at least these numbers do present a much healthier picture than was the case twelve months ago.

The renewed stability in oil prices at or around $50 a barrel has seen profits more than double to $3.75bn and well above consensus expectations. More importantly they appear to justify the somewhat risky decision by Shell management to pay such a big price for BG Group and its LNG assets.

In seeking to mitigate the cost of this the company embarked on a $30bn cost cutting program which it is making good progress on.

As far as the LNG business is concerned the volume of sales saw a rise of 29%, with earnings rising to $1.18bn, while the significant improvement seen in its cash flow to $9.51bn, has eased concerns about the sustainability of its dividend in the short term, which will be a welcome relief to shareholders concerned about a dividend reduction.

The dividend has been announced at $0.47c a share and these numbers suggest that Shell is well on the way to coping with the new reality of lower oil prices, a welcome relief when break even costs on the BG deal were being estimated at levels well north of $60 a barrel.

Challenges still remain about the sustainability of dividends in the oil and gas sector, as well as future demand, however Shell appears to taken a significant step forward in assuaging the concerns of its own shareholders about its cash payout in the short term at least.

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