Will Royal Dutch Shell Plc Results Help Keep It Ahead Of BP plc?

While BP (LSE: BP)(NYSE: BP.US) has been suffering the painful aftermath of the Gulf of Mexico disaster, Royal Dutch Shell (LSE: RDSB)(NYSE: RDS-B.US) shares have been driving ahead. Over the past five years, BP is down 32% while shell is up 25%, and though BP’s dividend recovered promptly after a quick cut, Shell has it beaten there too.

But as BP’s Gulf costs edge towards conclusion, the plummeting price of oil is set to be the most important factor, at least over the coming year, with some analysts expecting oil to remain around $50 per barrel for at least two or three years.

Results next week

Shell’s full-year results should be with us on 29 January, and there aren’t really any surprises likely in its 2014 performance. At Q3 time, reported in October, Shell announced a rise in quarterly earnings from $4.2bn to $5.3bn on a current cost of supplies basis. For the full year, analysts are expecting to see a 33% bump in earnings per share which would drop the shares, currently price at 2,229p, to a P/E of only 9.3 and with a dividend yield of 5.5% predicted — but there is a fall in EPS forecast for 2015, and the full effect of low oil won’t have worked its way through to that yet.

But now 2014 has gone, eyes will surely be peeled for any clues we can get about changes in strategy and operations heading further into this year.

Cutting back

We’ve already heard that Shell has decided to shelve its £4.3bn Al-Karaana joint project with Qatar Petroleum, with the firm citing high capital costs that can’t be justified while oil is so cheap, and it will be surprising if further exploration and development efforts are not affected as 2015 progresses — extraction in some areas, like the North Sea, is very expensive compared to the sale price of a barrel.

Things are hard for BP too, of course, with the company already having announced the loss of 200 jobs and 100 contractor positions from its North Sea operations, and both companies are likely to rein in capital expenditure significantly over the next 12 months.

Too much?

Some commentators, however, are fearful that Shell might overdo the cutbacks and leave it short of upstream assets, should we see a rebound in the oil price sooner than expected — it’s no secret that the current supply glut from the open taps of the Middle East is expected to see off competition from the fledgling — but much more costly — oil shale business, and that industry could severely shrink in a relatively short timescale.

Whether Shell can keep its shareholder rewards ahead of BP’s will depend a lot on how the two companies handle the cheap-oil crisis, and we’ll know more next week — and even more when BP reports the week after.

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Alan Oscroft has no position in any shares mentioned. 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.