Shell reports 44 per cent drop in fourth quarter earnings

A flag bears the logo of Royal Dutch Shell outside the head office in The Hague, Netherlands, on Monday, April 7, 2014. (AP Photo/Peter Dejong)

LONDON -- Royal Dutch Shell said fourth-quarter earnings tumbled 44 per cent as the collapse in oil prices took its toll on another global energy giant.

Profit adjusted for changes in the value of inventories and one-time items dropped to $1.83 billion from $3.26 billion in the same period a year earlier, the Anglo-Dutch company said Thursday.

The results came days after Shell sealed a $52.4 billion takeover of BG Group Plc, which will increase the company's proven reserves of oil and natural gas by 25 per cent. While critics questioned the deal because of the plummeting price of oil, CEO Ben van Beurden promised it would rejuvenate Shell.

The BG deal comes as Shell and other oil companies are slashing jobs and postponing investments to adjust the bottom line to the dramatically lower oil prices.

Jobs will also be eliminated in the Shell-BG deal and other efforts to boost competitive performance. In a statement released last month just before shareholders voted on the BG merger, Shell said that streamlining and integration from the deal and other cost cutting would include the loss of 10,000 staff and contractor positions across both companies in 2015-2016.

"In 2015, we significantly curtailed spending by reducing the number of new investment decisions and designing lower-cost development solutions," van Beurden said. "Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that."

Oil prices have been falling for over a year. Brent crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January, having been above $100 a barrel in September 2014. It traded at $33.54 on Wednesday.

Shell cut capital investment by $8.4 billion to $28.9 billion and slashed operating costs by $4.1 billion to $41.1 billion for 2015. The company expects another $3 billion in cuts this year. Net income improved 58 per cent to $939 million.

Van Beurden told reporters in a webcast that he expected prices would rebound later in the year or in the early part of next year. The fundamentals point to a higher price, he said.

"Can oil prices go lower? I'm sure they can. Will they go lower? I don't know," he said. "If you look at ... the slightly longer run, you are not going to see structurally lower oil prices in the $30s."

The report comes amid sweeping changes for the company. Shell has exited from exploring in Alaska for the foreseeable future and cancelled the Carmon Creek heavy oil project.

Oil supplies are high even though consumption growth has tailed off, particularly in China. OPEC members, meanwhile, haven't wanted to cut production -- even at a time Iran wants to turn on the taps after decades of sanctions.

Campaign groups like Greenpeace suggest it's time the oil companies focused on other forms of energy, citing more electric cars, solar panels, and better-insulated homes.

"Shell and BP have bet heavily on the wrong energy sources, and now they're losing big," Greenpeace UK's senior climate adviser Charlie Kronick said. "The problem is that with thousands of jobs, billions in investments and people's pensions tied up with their companies' fortunes, Big Oil's bosses won't be the only ones to pay for their shortsightedness."