Shell posts highest earnings in four years as cost cutting pays off
Shell restated its commitment to the North Sea as it showed its highest profits in four years this morning, boosted by higher oil prices as cost cutting at the British-Dutch oil major bore fruit.
“We are quite happy with our position in the UK's North Sea,” chief executive Chief executive Ben van Beurden told reporters in London.
“Our focus is very much on growing the business that we still believe has a lot of life left in it. So our commitment to the UK continental shelf is quite strong and I continue to believe that it will have a lot of life in it, even under the challenging circumstances that we see today.”
The figures
The company showed earnings on a current cost of supplies basis rising to $21.4bn (£16.3) in 2018, a 36 per cent increase on the year before.
Meanwhile, fourth quarter earnings grew 32 per cent year-on-year to $5.7bn.
The company also said gearing, or the level of debt to its equity, had sunk from 25 per cent to 20 per cent.
Meanwhile oil production rose insignificantly by 2,000 barrels per day to 3.67m.
Why it’s interesting
Shell started cutting costs after the 2014 crash in oil prices, selling off around $30bn in assets.
Last quarter it divested assets in New Zealand to OMV for $578m.
But it was a boom in global oil markets which really helped to boost results. The average price which Shell charged for a barrel of oil increased 31 per cent in 2018 to $71, with overall liquids – including liquid natural gas – rising 30 per cent to nearly $64.
However, prices fell in the fourth quarter as global Brent prices faltered, sending the liquids down to just under $60 per barrel.
Richard Hunter, head of markets at Interactive Investor, said: “Within the numbers, negatives are few and far between. The company will have a firm eye on operating expenses, which rose by 4%, whilst the company’s divestments will put extra pressure on the remaining units.
“Any further weakness in the oil price will need to be managed carefully and, longer term, capital expenditure will be a continuing drain as the company looks to explore alternative energies as the power landscape changes.”
What Shell said
“We have shown that we are a company which delivers against the commitments made,” Chief executive Ben van Beurden told reporters in London. “In spite of [oil price volatility] we saw all of our businesses deliver.”
However, van Beurden admitted Shell needed to improve its health and safety record after its 2018 injury rate grew compared to the lowest ever year in 2017.
“We have some more work to do. We had two contractors who died in 2018. No loss of life is acceptable.”