BP BP Plc

By Sarah Kent 

LONDON-- Royal Dutch Shell PLC Thursday reported its worst profits in over a decade and said its reserves of oil and gas were depleting as a hefty decline in global oil prices continued to hammer the energy industry's earnings.

Shell's fourth quarter-profit tumbled almost 60% to $1.8 billion down from $4.2 billion a year earlier, on a current cost-of-supplies basis--a number similar to the net income that U.S. oil companies report. Its profit for the year dropped 80% to $3.8 billion, compared with $19 billion in 2014.

Adding to the pressure, its reserves dropped 20% in 2015. Shell said low oil prices forced it to slash 1.4 billion barrels from the volume of oil and gas it expects to develop.

Big oil companies frequently struggle to replace the oil they pump each year, but it is unusual for reserves to actually decline. BP said this week that it replaced 61% of its reserves in last year, and Chevron has said its reserve replacement ratio was 107%.

As dismal as that results sound, they were better than some analysts and investors expected, reflecting the malaise weighing on the energy industry with crude-oil prices down more than 70% since their June 2014 peak. Shell shares rose about 6% Thursday.

Helping its stock price was Shell's comments that it wouldn't lower its dividend of $1.88 in 2016, although it declined to give guidance on future years. Chief Financial Officer Simon Henry said the company would take "prudent measures" on its dividend policy.

Standard & Poor's ratings had downgraded Shell's credit rating Monday, in part because the company has been unable to cover its capital spending and dividend payouts from cash.

Shell's results came on the same day that ConocoPhillips said it would slash its dividend 66%, only the second large oil and gas producer to take such a step after Italy's Eni SpA trimmed payouts last year. Elsewhere, Norway's Statoil ASA reported a surprise loss of 9.2 billion Norwegian kroner ($1.8 billion) in the fourth quarter, even worse than its loss of 8.9 billion kroner a year earlier.

The latest results capped a week of poor financial performance by the world's largest oil companies as a 20-month slide in the price of oil eroded earnings for 2015. Shell's rival U.K. oil giant, BP PLC, reported a loss of $5.2 billion in 2015, on par with the hit it took after its Gulf of Mexico blowout in 2010. Chevron Corp. and Exxon Mobil Corp. posted their weakest annual results in more than a decade.

The fall in oil prices has hammered big oil companies' ability to generate profits from their oil and gas production. Shell's exploration and production business lost $5.7 billion last year, hit by falling prices, lower volumes and sizable losses on the value of its assets.

The company said its oil production business brought in 48% less in 2015 compared with 2014 and revenue generated from natural gas fell 27%. Volumes of oil and gas tumbled 4% to 3 million barrels a day in the year, dented by a mixture of divestments, expiring licenses, security issues in Nigeria and limitations on output from a giant gas field in the Netherlands.

The decline in the company's proved reserves throws into question its ability to maintain that level of production in the future. The company is preparing to close a roughly $50 billion acquisition of BG Group PLC, which is intended to address some of the weaknesses displayed in its 2015 performance. The acquisition is expected to increase the company's output by around 20% and bolster reserves by around 25%.

"While not entirely comfortable with a negative number, it's not the most important thing on the results today," Shell's chief Financial Officer Simon Henry told reporters on a conference call, noting the positive impact the BG acquisition of BG is expected to have on the company's volumes. "That doesn't mean it's not an issue over time, but the BG deal gives us--together with our own assets--more choice and more certainty," he said.

The company said the acquisition will also refocus its strategy as one of the world's largest liquefied natural gas producers and a major player in deep water oil projects, providing it with a platform to bring down its break-even costs. The completion of the deal, expected Feb. 15 will mark "the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns," Chief Executive Ben van Beurden said in a news release.

The company has come under criticism from investors and analysts for the price it is paying for its smaller rival amid the steep slide in oil prices.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

February 04, 2016 10:03 ET (15:03 GMT)

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