Royal Dutch Shell Plc In Damage Control Mode After Posting Record $7.4bn Loss

Royal Dutch Shell Plc (LON: RDSB) has reported an eye-watering $7.4bn third quarter loss.

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After BP reported its third-quarter results earlier this week, today it was Royal Dutch Shell’s (LSE: RDSB) turn to reveal how much damage the low oil price has done to profits. 

Shell slumped to a third-quarter pre-tax loss of $9.1bn after writing down the value of several projects that are no longer economically viable. The group booked $7.9bn of exceptional items and the post-tax loss amounted to $7.4bn. 

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Adjusted net income, which excludes the effect of exceptional items came in at $1.8bn. Analysts were expecting the company to report adjusted net income of $2.9bn.  Revenue crashed from $107.9bn a year ago to just $68.7bn for the three months to the end of September. 

Overall, Shell’s $9.1bn pre-tax loss is a full $17.2bn below the $8.1bn profit reported for the third quarter of last year. 

Large losses

Shell has done its best to warn investors that the company’s third-quarter results were going to be difficult to swallow over the past few months.

City analysts had estimated that the company’s decision to scrap its Arctic drilling programme would cost the group up to $4.1bn in third-quarter losses. And earlier this week, Shell announced that it was taking a $2bn charge after deciding to cancel its Carmon Creek project in the Canadian oil sands.

Today, Shell revealed that the final cost of stopping its Arctic drilling programme would be $2.6bn. Still, it’s estimated that by pulling out of the Arctic Shell will save $1bn per annum in exploration costs. 

Not time to give up

Despite the company’s dismal set of results,  Shell — which is currently in the process of buying smaller peer BG — is upbeat about the future.

Indeed, management announced today that the company’s quarterly dividend payout would be maintained at 47 cents a share, and the BG acquisition was on track for completion during the first quarter of 2016. 

Shell’s chief executive Ben van Beurden said that, when completed, the merger with BG will provide a “springboard” back into profitability as took over the running of BG’s deepwater and LNG projects. 

What’s more, along with the acquisition of BG, Shell is aggressively cutting costs to remain competitive as the price of oil remains under pressure. The company is now living within its means, and cash generated from operations is covers spending. 

Mr van Beurden highlighted this fact within today’s results release, noting that Shell’s balance sheet gearing currently stands at “12.7%, similar to year ago levels, despite a halving of oil prices. Both net investments and dividends have been covered by operating cash flow over the last year, when oil prices have averaged $60 per barrel.”

The bottom line 

So overall, while Shell’s headline figures might look disappointing, long-term investors shouldn’t be concerned. Shell is living within its means, the company’s hefty 7% dividend yield looks here to stay, and debt remains low. 

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Rupert Hargreaves owns shares of Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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