First quarter updates reflected a mixed showing for both Royal Dutch Shell (RDSB) and BP (BP.), while the majors' growing commercial ties with Russia have come in for intensified scrutiny due to the political impasse in Ukraine. Last month, Shell executives met with Vladimir Putin on the 20th anniversary of the opening of its huge LNG plant on Russia's Sakhalin Island. Shell re-affirmed existing plans to expand capacity at Sakhalin, but it is keeping schtum on any other plans for the region.
Politics aside, Shell's profits were on the slide as the group felt it prudent to book $2.86bn (£1.7bn) in impairments mainly attributable to underperforming refineries in Asia and Europe. The result was that Shell’s quarterly profits on a current cost of supplies basis – a measure that strips out the impact of inventories – fell by 44 per cent to $4.47bn.
Daily production over the quarter averaged 3.25m barrels of oil equivalent (boe), representing a 4 per cent decline from 2013 once divestments and one-off impacts are factored. But Shell's new chief executive, Ben van Beurden (a 30-year veteran of the Anglo-Dutch giant), is focusing on increasing the contribution of the most profitable businesses within the group, rather than simply driving up output at every turn. Mr van Beurden's $15bn divestment programme is ahead of schedule, although net capital investment of $10.1bn for the quarter suggests that restricting the total outlay to the year-end target of $35bn will be a close-run thing. The good news for shareholders is that a strong cashflow performance enabled Shell to increase its first quarter dividend by 4 per cent to $0.47 a share.
Though BP's performance also suffered due to weaker refining margins, it, too, provided a boost for shareholders, by raising its quarterly dividend (up 8 per cent to $0.0975) for the second time in six months. Chief executive Bob Dudley also revealed that further share buy-backs were in the offing, as the group's cash position improves on the back of non-core asset sales.
Excluding a $12.1bn gain in the first quarter of 2013 from the sale of the TNK-BP business, BP's underlying replacement cost profits fell by a quarter to $3.2bn, although this was still slightly in advance of the consensus forecast. The group’s share of profits from its 20 per cent stake in Rosneft plummeted due to a weakening rouble, on fears linked to the possible effects of western economic sanctions against Russia.
