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Company says it has options for more cuts

Shell cuts spending by $15 billion in new blow to oil industry

ShellOil giant Shell delivered another potential blow to the beleaguered industry today by cutting spending by $15 billion (£10bn) over three years.

The sharp plunge in oil prices has forced the company to revise its expenditure, making it the latest major to scale back its operations.

Shell said it had options to further reduce spending but it was “not over-reacting to current oil price” and was “keeping our best opportunities on the table”.

In an unaudited statement Europe’s largest oil company by market value said it expects to maintain its fourth-quarter dividend at $0.47 per share, which is a likely signal to investors that its actions are precautionary.

Shell’s full year profits are likely to rise to $19bn against $16.7bn in the previous year while thee final three months came in at $4.2bn from $2.2bn.

Chief executive Ben van Beurden said: “Shell has delivered where it counts in 2014. We are stepping up our drive for stronger capital efficiency, whilst being careful not to over-react to the recent fall in oil prices.

“Our strategy is delivering with good performance on three themes of financial performance, capital efficiency and project delivery. These will remain Shell’s priorities in 2015 as we continue to balance growth and returns.”

The tough climate for oil comes against a decision by  OPEC in November not to cut output in a move the group of oil producing nations hopes will force higher cost producers to trim production.

Oil majors including Shell rivals BP and Total have said they do not intend to cut dividends even if oil prices stay low for longer.

Most oil majors have already announced cuts in capital expenditures of around 10-15% and sold assets worth dozens of billions of dollars.

Analysis from Graham Spooner, investment research analyst at The Share Centre:

“Royal Dutch Shell announced figures that were overall below consensus forecasts, particularly at exploration and production levels. The company said capital expenditure in 2015 is expected to be lower than 2014 levels, with more than $15bn of potential spending to be reduced over the next three years. Despite the results showing a rise in Q4 profit, investors should be aware that poor performance in the same period last year means the like-for-like rise is weaker than it appears.

“The company has remained resilient against slumping oil prices, which have fallen more than 50% since the middle of last year. The oil giant’s quarterly profit on a current cost-of-supplies basis was $4.2bn, compared with $2.2bn in the same period last year. Shell is the first of the big four oil companies to report earnings for last year’s final quarter and analysts expect the weaker oil price to weigh heavily on all, compared with a year ago.

“We recommend Royal Dutch Shell as a ‘buy’ for medium risk investors. Despite the fall in the oil price, we believe it still represents a core holding for most portfolios due to the relatively stable cash flows and attractive dividend income that it generates.”

“The company has remained resilient against slumping oil prices, which have fallen more than 50% since the middle of last year. The oil giant’s quarterly profit on a current cost-of-supplies basis was $4.2bn, compared with $2.2bn in the same period last year. Shell is the first of the big four oil companies to report earnings for last year’s final quarter and analysts expect the weaker oil price to weigh heavily on all, compared with a year ago.

“We recommend Royal Dutch Shell as a ‘buy’ for medium risk investors. Despite the fall in the oil price, we believe it still represents a core holding for most portfolios due to the relatively stable cash flows and attractive dividend income that it generates.”

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