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Shell Reports Sharp Fall in 2Q15 Profit but Makes Daring Moves

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Shell’s 2Q15 profit takes a major blow

Anglo-Dutch oil giant Royal Dutch Shell (RDS.A) reported a second-quarter profit of $3.4 billion. This is a 33% fall from $5.1 billion over the prior year using a current cost of supplies basis. The company’s E&P (exploration and production) or upstream business tumbled the most, falling ~80% over the prior year period to $774 million.

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Shell makes daring moves despite weak oil prices

In April, Shell entered into an agreement to acquire BG Group (BRGYY), a deal worth $70 billion. It’s the largest purchase the company has made and the largest deal in the energy sector over the last decade or so.

The company is taking strides to continue its drilling plans in the Arctic this summer. While major energy companies such as BP have kept key projects on hold, Shell decided to go ahead with the development of its Gulf of Mexico–based deep water Appomattox oil field.

Shell’s cost-cutting measures

Shell has announced it will lower capital investment this year by 20% and reduce its operating costs by $4 billion. This echoes industrywide trends in cost cutting. BP has also declared that its organic capital expenditure will be less than $20 billion due to the losses the company has incurred.

The fall in oil prices is taking a toll on the performance of oil and gas exploration and production companies such as Noble Energy (NBL), ConocoPhillips (COP), and Apache (APA), which together account for 7% of the Energy Select Sector SPDR ETF (XLE).

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