Royal Dutch Shell posted a downfall in its earnings as a result of the decline in oil, gas and liquefied natural gas (LNG) prices.
The company also attributed weaker refining margins, increased taxation and the depreciation caused by the BG acquisition in February 2016 to the disappointing results.
“Downstream and Integrated Gas businesses contributed strongly to the results, alongside Shell’s self-help programme. However, lower oil prices continue to be a significant challenge across the business, particularly in the Upstream,” Shell CEO Ben van Beurden, said.
Shell Profit Falls with Oil Price Decline
The supermajor disclosed US$200 million (£151.5 million) in earnings compared to US$3.4 billion (£2.57 billion) for the same period last year, with cash flow from operating activities at US$2.3 billion (£1.74 billion).
Although the company’s earnings benefited from increased production volumes from BG assets, it is still running a down-cycle characterised by strong cost reductions, lower and more predictable investment levels and asset sales plans, the CEO explained.
Shell CEO Ben van Beurden
Nevertheless, Shell won’t drop the start-up of “profitable new projects,” he said.
“At the same time, integration of Shell and BG is making strong progress and our operating performance continues to further improve,” he added.
Overall, this year will be marked by “significant and lasting changes” to the company’s working practices and cost structure, with Shell “firmly on track to deliver a US$40 billion (£30.3 billion) underlying operating cost run rate at the end of the year.
Shell Expects Rise in Oil Product Sales in H2-2016
In the upstream sector, Shell saw a continued success in its exploration programme with two new finds in Oman and the US.
Earlier this month, the company announced first oil in the ML South development in Brunei, where it holds a 35% interest, with expected production of nearly 35,000 barrels of oil equivalent per day (boepd).
Also in July, the non-operated Lula Central Production System was started up with the interconnection of the first production well to the FPSO Cidade de Saquarema.
In Q3-2016, Shell still expects a reduction in gas production and upstream earnings, mainly as a result of rebel attacks in Nigeria.
However, the volume of oil product sales is expected to rise by some 200,000 barrels per day as a result of divestments in Denmark, Norway and France.