Shell could offer investors long term growth

Analysts say it’s about the ‘bigger picture’ for this oil giant.

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By :  ,  Financial Analyst

After posting stronger than expected earnings for the first quarter of 2015, Royal Dutch Shell has been named as Questor's top tip in the oil sector.

The company reported a 56 per cent drop in first-quarter net income at $3.2 billion (£2.09 billion) – this beat analyst estimates and demonstrated the strength of the company's downstream unit. In addition, it showed the company's continued willingness to cut costs, reports the Telegraph.

In the first three months of the year, Shell's profits from refining and trading rose to $2.65 billion – up from $1.75 billion in the same period last year. This helped to offset a steep drop in upstream earnings. However, the decline (from $5.7 billion to $675 million) was expected by experts due to current market weakness.

This is compared to the company's bigger rival Exxon Mobil. It reported a 63.3 per cent drop in earnings fro its upstream division and its refining unit saw revenues double to $1.7 billion.

It's expected that both companies should come out of the current difficult oil market better than their competitors – thanks to their 'deep pockets' and diversified portfolios.

Cost-cutting expected​

Despite the stronger-than-expected earnings, Shell needs to keep a tight hold on its finances. The company recently purchased BG Group. The sale means that Shell is the biggest listed supplier of liquified natural gas (LNG) – but the company must also work to safeguard its dividend. Another $2 billion of cost-saving measures have been announced, which will reduce its total forecast capital expenditure for the year to $33 billion.

Experts say that investors should be happy with the strong results and the 'solid' dividend of $0.47 per ordinary share. The company is investing in the long-term future and security of the business through the BG acquisition and is making a "major bet" on the importance of natural gas – particularly the rising demand for the fuel in Asia.

​In addition, Shell remains a significant producer of petroleum, having produced 3.16 million barrels of oil equivalent per day in the first quarter.

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