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Shell Swings to Profit in Third Quarter

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ShellRoyal Dutch Shell Plc posted expectation-beating profit during the third quarter, helped by acquisition of BG Group Plc.

On Tuesday, the oil giant revealed that its profit during the last quarter came in at $1.4 billion on a current cost-of-supplies (CCS) basis, driven by increased production and lower operating costs. The figure marked a significant improvement on the $6.1 billion loss reported during the same period in 2015.

The CCS measure is considered equivalent to net income reported by companies in the United States. It is commonly used by companies that deal in commodities.

Earnings, when adjusted for inventory changes and one-time items, jumped to $2.79 billion, up about 17 percent from the $2.4 billion reported in the third quarter of 2015.

Shell’s profit (excluding identified items) smashed the company’s consensus estimate of $1.7 billion and an average estimate of $1.79 billion provided by analysts in a Bloomberg survey.

“Shell delivered better results this quarter, reflecting strong operational and cost performance,” Chief Executive Officer Ben van Beurden said in a statement. “But lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain.”

Van Beurden said the improved earnings “benefited from increased production volumes mainly from BG assets.”

Production of oil and gas gained 25 percent from a year ago, rising to 3.6 million barrels of oil equivalent per day, as reported by Bloomberg. The Hague-based oil giant swung to profit in its exploration and production business with earnings of $4 million, a reverse of the loss recorded during the same quarter last year.

Beurden completed the acquisition of BG in a record $54 billion deal in February. The transaction gave Shell a 20 percent share of the global market for liquefied natural gas. The company also gained some high-margin oil fields located in Brazil.

The results were also boosted by actions Van Beurden took to check the impact of the downturn in the global oil market.

The Shell chief executive has cut more than 12,000 jobs and renegotiated several contracts. He has also embarked on a massive asset-sale program that would see the multinational oil company sell off assets worth about $30 billion.

Shell generated $200 million from asset sales during the third quarter.

Aside cutting costs, Shell, like some other European oil companies, has also ramped up borrowings to guard dividends from falling as a result of the downturn. The company also added billions of dollars to its debt to enable it complete the BG acquisition.

Debt to capital stood at 29.2 percent in the third quarter, more than double the 12.7 percent posted in the same period a year ago.

Shell paid its shareholder $3.8 billion in dividends, with about $1.1 billion of these allocated in shares. Capital expenditure amounted to $7.7 billion.

Capital investments are expected to come in around the lower threshold of Shell’s guidance of $25 billion to $30 billion for 2017, down from $29 billion in the current year.

Van Beurden promised to enhance savings from the BG acquisition while also protecting dividends from the oil market slump.

The most-traded B shares of the company were trading higher in London on Tuesday morning. They have gained around 42 percent in 2016.