Royal Dutch Shell’s first quarter results confound expectations despite deep slide in earnings

Otmane El Rhazi from Mindful Money » Shares.

Royal Dutch Shell reported on Thursday that its revenues dropped 40% to $65.7bn in the first three months of 2015 compared to the same period last year, beating market expectations.

In addition,it endured a 56% decline in earnings to $3.25bn as lower oil prices hit home. But despite the slide, the overall broker consensus towards the shares remains a ‘buy’.

Ian Forrest, investment research analyst at The Share Centre, said that while the latest numbers were ahead of forecasts, they still “clearly demonstrated the impact of lower oil and gas prices”.

In its market update, Shell said that it expects production in the second quarter to fall by 400,000 barrels compared to the same period last year. Forrest said: “We believe that this suggests the £47bn merger with BG, announced earlier in April, has come at just the right time.”

He added: “Investors should acknowledge that the downstream refining business improved its margins and lowered cost levels, while the upstream business saw production down 2% to 3.17m barrels of oil a day.”

There were also some reassuring aspects for investors, as the quarterly dividend was maintained at $0.47, while the oil major is also having some success with selling non-core assets and reducing its costs.

Royal Dutch Shell chief executive officer Ben van Beurden said the results reflected the strength of its “integrated business activities, against a backdrop of lower oil prices”

He added: “In what is clearly a difficult industry environment, we continue to take steps to further improve competitive performance by redoubling our efforts to drive a sharper focus on the bottom line in Shell.

“Looking ahead, the proposed combination with BG, which we announced in April, would create a stronger company for both sets of shareholders.”

For Forrest, Royal Dutch Shell remains his favourite oil and gas major, and recommends it as a ‘buy’ for medium risk, income seeking investors. He said: “The company represents a core holding for most portfolios due to the relatively stable cash flows and attractive dividend income that it generates.

“At this price the group’s shares do not look overvalued compared to its main peers and the BG deal, along with the $25bn share buyback programme, are all positive news for investors.”