Royal Dutch Shell Plc, which is buying BG Group Plc in the industry’s largest deal in a decade, expects fourth-quarter profit to drop at least 42% after the rout in crude prices deepened.
Profit adjusted for one-time items and inventory changes probably shrank to $1.6 billion to $1.9 billion, Shell said on Wednesday in a preliminary earnings statement. That compares with the $1.8 billion average estimate of nine analysts surveyed by Bloomberg and profit of $3.3 billion a year earlier.
BG also published a provisional results statement that showed its 2015 oil and gas production will probably beat forecasts. It expects full-year adjusted profit to be about 58% lower.
Crude’s collapse below $30 a barrel has driven down Shell’s market value to the lowest in almost seven years and prompted concern it may be overpaying for BG’s production and cash flow.
Shell has prepared for a prolonged market slump by cutting staff and spending. Job losses at both companies in 2015 and 2016 will exceed 10,000, including 2,800 after the combination takes effect, according to Chief Executive Officer Ben Van Beurden, repeating previous announcements.
“Shell has reiterated its determination to see the BG deal through, despite some concerns around the viability of the transaction given a depressed oil price which is under continuing pressure,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said in an email.
BG’s “robust operational performance” in Australia and Brazil “vindicate a large part of the rationale for the deal,” he added.
The average price of Brent crude, the international benchmark, fell 42 % in the quarter from a year earlier to $44.69 a barrel, the lowest since 2009.
Shell reduced operating costs by $4 billion, or about 10%, in 2015, and plans to cut them by $3 billion this year, the company said. It plans $33 billion of capital expenditure this year following the combination with BG, lower than a previous estimate of $35 billion.
The company has the flexibility to shrink further, according to the statement. Shell’s shareholders are scheduled to vote on the acquisition on Jan. 27 and BG’s the next day. Shell requires the backing of 50% of its holders.
