Business Context and Reporting Period
This Form 6-K filing by Royal Dutch Shell plc, dated January 20, 2016, provides a trading update on expected fourth quarter and full year 2015 unaudited results. The update was issued ahead of a General Meeting on January 27, 2016, regarding the recommended combination with BG Group plc. Final results are scheduled for release on February 4, 2016.
Key Financial Metrics
| Metric | Q4 2015 (Expected) | Full Year 2015 (Expected) |
|---|---|---|
| CCS Earnings (excl. identified items) | $1.6 - $1.9 billion | $10.4 - $10.7 billion |
| Income Attributable to Shareholders | $0.6 - $1.0 billion | $1.6 - $2.0 billion |
| Cash Flow from Operating Activities | $4.8 - $6.0 billion | $29.2 - $30.4 billion |
| Identified Items (Net Charge) | $0.2 billion charge to immaterial gain | $6.8 - $7.0 billion |
| Production | 3.0 million boe/d | 2.9 million boe/d |
| Capital Investment | Filing text does not provide a clear Q4 value | $29 billion |
| Net Debt | Filing text does not provide a clear Q4 value | $27 billion |
| Gearing Ratio | Filing text does not provide a clear Q4 value | 14% |
| Dividends Declared | Filing text does not provide a clear Q4 value | $1.88/share ($12 billion total) |
Segment Earnings (Q4 2015 CCS excl. identified items)
- Upstream: $0.4 - $0.5 billion
- Integrated Gas: $1.6 - $1.9 billion
- Downstream: $1.4 - $1.6 billion
- Oil Products: $1.3 - $1.4 billion
- Chemicals: $0.1 - $0.2 billion
Material Changes and Operational Highlights
Operating costs were reduced by approximately $4 billion (10%) in 2015. Capital investment for 2015 is expected to be $29 billion, representing an $8 billion (over 20%) reduction from 2014 levels. Asset sales for 2014 and 2015 combined exceeded $20 billion, surpassing the original $15 billion target. Gearing increased to 14% at year-end 2015, compared to 12.2% at the end of 2014 and 12.7% at the end of Q3 2015.
Guidance, Outlook, and Management Commentary
CEO Ben van Beurden highlighted momentum in cost reduction and competitiveness. The company expects costs to fall by a further $3 billion in 2016. Combined capital investment for Shell and BG in 2016 is expected to be $33 billion, a 45% reduction from the 2013 peak. Preparations are advanced for $30 billion in asset sales between 2016 and 2018, contingent on the BG combination. The company plans to reduce staff and direct contractor positions by approximately 10,000 across both companies in 2015-2016.
Dividends for 2016 are expected to be at least $1.88 per share, or $15 billion in total assuming the successful completion of the BG combination. Management noted strategic exits from low-return upstream positions, including Alaska exploration, the Carmon Creek heavy oil project, and shale positions in multiple countries.
Investor Verification Checklist
- Verify the final audited figures for Q4 and full year 2015 when announced on February 4, 2016.
- Confirm the successful completion and regulatory approval of the BG Group combination.
- Monitor the execution of the planned $30 billion asset sales program for 2016-2018.
- Assess the impact of the 10,000 position reduction on operational efficiency and integration costs.
- Review the reconciliation of the non-GAAP "CCS earnings" measure to GAAP IFRS earnings in the final report.