Company in the news: Royal Dutch Shell

Anglo-Dutch oil giant Royal Dutch Shell (LSE: RDSB) shocked the City with a profit warning last week. Some of the problems it discussed, such as loss-making shale gas projects in America and ongoing issues with oil theft in Nigeria, are not new.

However, Shell is also now making less money from refining (turning oil into other products) and selling petrol. Some of its high-value oil and gas fields have suffered from higher-than-expected costs and have been producing less than hoped too.

Yet it’s always a good idea to watch the City’s reaction to these sorts of warnings, and the reality is that no one seems to be particularly concerned – the shares really haven’t fallen much. So you can’t help thinking that the new chief executive Ben van Beurden is doing some clearing of the decks now so that life might be a little easier for him later on.

That said, Shell has a lot of work to do as it continues to underperform its peers. It needs to stop spending money and focus on getting more cash through the door. The company knows this and is on the case.

It has some good assets, strong finances and a decent dividend, which analysts expect to be maintained. Providing oil prices stay between $80 and $100 per barrel, Shell could be generating lots of surplus cash in a couple of years’ time. This is not the time to sell.

Verdict: buy for dividends

Merryn

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