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Shell defies critics by putting lid on costs

Royal Dutch Shell has proved its critics wrong, its finance chief declared yesterday, as the oil group reported progress in shoring up its finances and protecting its prized dividend.

Shares in the Anglo-Dutch company rose 2.5 per cent at one point as investors shrugged off disappointing fourth-quarter results which dragged full-year profits down 8 per cent to $3.5 billion, the lowest in more than a decade.

Underlying earnings of $1.8 billion for the final quarter were up 14 per cent on the previous year but $1 billion below independent forecasts, primarily because of deferred tax charges.

However, analysts were impressed by better-than-expected cashflow and progress in controlling spending. These are critical to the company maintaining its dividend and reducing debt after its £35 billion acquisition of BG Group last February. For the first time since the takeover Shell reported a reduction in its gearing, to 28 per cent, as net debt fell to $73 billion.

Ben van Beurden, chief executive, said: “Debt has been reduced and, for the second consecutive quarter, free cashflow more than covered our cash dividend. Our strategy is starting to pay off.” Shell was “gaining momentum on divestments” and was on track to meet its target of selling $30 billion worth of assets by the end of 2018.

Shell has announced agreements to sell $10 billion worth of assets, including a $3 billion North Sea deal this week, and said a further $5 billion of undisclosed deals were in progress.

Simon Henry, presenting his last set of results before retiring as finance chief, said that the company had been strongly criticised for failing to set steeper targets for cutting expenditure after the oil price crashed, when its rivals were “banging their chest and saying what they are going to do”.

“Exactly two years ago Ben was criticised quite significantly for not getting it”, he said. “Ben just said that we are going to do the right thing and do it in the right way.” Shell’s capital investment was cut by 40 per cent to $27 billion last year compared with the combined spending of Shell and BG Group in 2014. “That’s a real chunk of change from a company that apparently didn’t get it,” Mr Henry said.

“The track record here demonstrates that we did respond quickly but we’ve done it in the right way.” In a thinly veiled reference to BP, which reports on Tuesday, he said: “The next couple of days will indicate who really got it, who acted most effectively. I think you should just go compare.”

Mr Henry said that Shell’s top priority was to reduce its debt. Once gearing levels were down to nearer 20 per cent the company could consider removing its scrip dividend and return to paying a full cash dividend.

Shell reported underlying full-year profits of $7.2 billion, 37 per cent down on 2015. Production increased by 24 per cent to 3.7 million barrels of oil equivalent per day, boosted by the inclusion of BG Group assets. This was more than offset by the lower oil price, with Brent crude averaging $43 a barrel compared with $54 the previous year.

Shell booked writedowns and other one-off charges of $3.7 billion, down from $7.6 billion, limiting the overall decline in profits to 8 per cent. Its shares closed 1.3 per cent higher yesterday at £21.65.

Shift to renewables ‘is unstoppable’
Donald Trump’s presidency will not derail the global shift towards greener energy, according to Shell (Emily Gosden writes).

Ben van Beurden, chief executive, said the energy transition was “unstoppable” and that Shell’s strategy — to focus on gas and to branch out into renewable power sources — would be unaffected.

Mr Trump has questioned the science of climate change and indicated that the US may withdraw from the Paris agreement to curb global emissions.

President Trump’s pledges on energy include unravelling environmental legislation

Mr van Beurden said: “Our position has been very clear and hasn’t changed: we believe climate change is real, we believe action is going to be needed, we believe we are in the middle of an energy transition that is unstoppable. We want to be in the vanguard of that.

“We will have to see how the president and his administration is going to play things out in terms of detailed policies, but I am confident that the change we are witnessing is unstoppable and I am confident we need to have a strategy that positions us for that type of future.”

Mr Trump angered environmentalists by reviving plans for the Keystone XL pipeline from Canada to Texas, which was halted by Barack Obama, and fast-tracking approval for a section of the Dakota Access pipeline that is fiercely opposed by Native Americans. His pledges on energy also include unravelling environmental legislation and “reviving America’s coal industry”.

Mr van Beurden also appeared to criticise the president’s curbs on immigration, saying that Shell benefited from free movement.

“We always advocate for openness, for no barriers, because we believe that it not only benefits our business model but also the world and the world economy,” he said.