Shell has warned that profits in the fourth quarter may be 50% lower than a year earlier, with write-offs for 2015 as high as $7bn (£5bn).
Underlining the damage being inflicted on the industry by low crude prices, it said on Wednesday it expected earnings to come in at between $1.6bn and $1.9bn and full-year numbers as low as $10.4bn. Shell is first of the large oil companies to report preliminary results for 2015.
Shares in the company dived a further 7%, to £12.71, ramping up the pressure on its chief executive, Ben van Beurden, who is trying to justify a £35bn takeover of rival BG that must be agreed by more than 50% of Shell shareholders next week.
Van Beurden insisted he was pleased with his company’s operating performance in 2015 and the momentum to reduce costs and improve competitiveness.
He also expressed confidence that shareholders would back the BG deal, saying: “Bold, strategic moves shape our industry. The completion of the BG transaction, which we are expecting in a matter of weeks, will mark the start of a new chapter in Shell, to rejuvenate the company, and improve shareholder returns.”
The merger was originally proposed when global crude prices were at $55 a barrel. They have since fallen below $28, driven down this week by expectations of even more oil coming into the market after nuclear sanctions were dropped by the west against Iran.
As oil prices hit a 12-year low on Wednesday, Shell downgraded the value of its North Sea reserves and said it would take other one-off losses which could be as high as $7bn for the full financial year.
In a separate announcement, BG said it would be reporting 2015 earnings of $2.3bn, a significant bounce back after losses in the previous year. “Our excellent operational performance in 2015 is expected to deliver results in line with, or ahead of, our guidance for the year,” said its chief executive, Helge Lund, who will leave if the deal with Shell goes through.
Oil analysts at the investment bank Barclays Capital said the strong figures from BG should swing Shell investors behind the merger: “The most positive feature from the update this morning was from BG with full-year production above the upper end of guidance and net cash flow 11% ahead of our estimate.
“This goes some way to help justify the timing of Shell’s proposed acquisition of BG and should in our view help firm up the likelihood of shareholders voting in favour of the deal next week.”
Shell, which reports its formal quarterly financial figures on 4 February, has been cutting jobs and spending over the past two years since Van Beurden arrived but has been running to catch up as global oil prices have plunged from highs of $115 in the summer of 2014.
Earlier this week the company ditched plans to jointly develop a gasfield in Abu Dhabi, which some analysts said could have been worth up to $10bn. It has already backed away from other high-cost schemes, including its controversial drilling in the Alaskan Arctic.
The International Energy Agency, which advises countries on energy policy, warned on Tuesday that the oil market could “drown in oversupply” and predicted the global glut would continue for at least most of the year.