Oil giant Shell has reported a set of bumper annual results after profits doubled last year thanks to the surging price of crude.
The group reported underlying earnings of £11.2billion for 2017, up from £5.1billion the previous year and pocketed £8.5billion in profits.
Earnings in the last three months of the year rose 140 per cent to £3billion, the group’s latest results show, bolstered by a rise in the oil price past $70 a barrel for the first time in more than three years.
Oil flowing: Shell profits were bolstered by a rise in the oil price past $70 a barrel for the first time in more than three years
Ben van Beurden, chief executive of Shell, said: ‘2017 was a year of strong financial performance for Shell. A year of transformation, in which we showed we have what it takes to deliver a world-class investment case.
‘We enter 2018 with continued discipline and confidence, committed to the delivery of strong returns and cash,’ he added.
The group said its annual earnings, which came in just higher than City expectations, were bolstered by the oil price rally and higher production levels from new oil fields, which offset declines from existing fields as well as its mammoth asset-selling programme.
It said it had already completed £16.9 billion of the £21.2 billion divestment plan launched in the wake of its takeover of BG Group in 2016.
The remaining £4.2 billion is already announced or near completion, it added.
Despite the positive progress and booming takings, shares in the oil firm fell in early trading, down 1.5 per cent at 2,469.50.
Richard Hunter, head of markets at interactive investor, said Shell is a strong company that has managed to streamline and focus the business ‘with aplomb’.
‘Despite today’s muted initial reaction to the results, the shares are on a good run, having risen 12% over the last year, as compared to a 6% hike for the wider FTSE100.
Higher production from oil fields also helped boost earnings, which beat market expectations
‘The old market adage of ‘never sell Shell’ has been vindicated again, with the general market consensus of the shares as a strong buy looking likely to continue,’ he said.
President Donald Trump’s US tax reforms meant Shell took a £1.4billion hit in the fourth quarter of 2017.
The reform slashes corporation tax in the US from 35 per cent to 21 per cent, meaning companies such as Shell have to recalculate the deferred tax assets on their balance sheets.
But Shell has already said it expects to benefit from the tax changes in the long run.
Oil and gas production stood at 3.66 million barrels of oil equivalent per day in 2017 – largely flat on 2016 as growth was offset by divestments, the firm added.
The rebound in oil prices has helped oil majors such as Shell and BP emerge from an extended slump, which saw Brent fall as low as 27.26 a barrel in January 2016.
As well as selling off a host of unwanted assets, Shell has also been making tactical investments, most recently its surprise move to snap up gas and electricity supplier First Utility in a deal that will see Shell go head to head with the established Big Six energy providers.
Its takeover of First Utility will see it go up against Britain’s Big Six energy providers
Through the deal, Shell will become a direct energy provider to 825,000 British homes.
Steve Clayton, manager of a Hargreaves Lansdown UK Select Income Shares Fund which holds Shell stock said the future looks promising for the group.
‘The real challenge now for Shell is to raise the group’s return on capital. At 5.8% in the final quarter, this is respectable, but uninspiring.
‘The group needs to keep operating expenses under tight control and so far, the evidence here is encouraging, with underlying operational expenses down almost a billion dollars during 2017.
He added: ‘Dividend growth remains some way off still. But with a yield of over 5%, investors are still receiving attractive returns from Shell.’
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