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Royal Dutch Shell's profits fall 58pc on oil price slide

Group increases debt to pay for dividend rise and capital expenditure

Royal Dutch Shell’s profits more than halved in the first quarter as oil prices tumbled, forcing the energy group to increase its debt to support both the dividend and its investment programme.

Despite the 58pc fall in profits to $3.3bn on a current cost of supplies basis, which takes into account changes in the value of oil and distillate inventories, Shell beat consensus forecasts of $2.6bn. The group’s performance for the three months to March reflected the oil price, which averaged $43.20 over the period compared with $97.86 in the first quarter of 2008.

As a result, cash flow from its operations was just $7.6bn, significantly lower than the $16.9bn in the same period last year and not enough to support its capital expenditure programme and dividend. To compensate, the company increased its borrowing.

Gearing rose to 6.6pc from 1.9pc to cover the $1.7bn cash shortfall after capital expenditure of $6.9bn in the quarter and the $2.4bn cost of the dividend. However, the company’s ratio of debt to equity is well below that of its main rival BP, which stands at 23pc. Shell expects gearing to rise to more than 20pc by December this year.


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