What's going on?

Shell, the massive European oil and gas company, reported its financial results on Tuesday � and relieved investors sent its stock 4% higher�

What does this mean?

Shell�s huge acquisition of BG Group earlier this year put it into more debt than most of its peers (which makes it a riskier investment because investors that have lent money have a right to get paid back before shareholders are allowed to be paid anything). But Shell is enacting a plan to reduce its debt load, which includes cutting costs substantially and selling a whole bunch of its assets (like rights to oil fields). Also, it pleasantly surprised investors on Tuesday by making a profit that was 18% higher than the same period last year.

Why should I care?

The bigger picture: Energy companies are not out of the woods yet.
The global oil majors (e.g. Shell as well as Exxon, Chevron and BP) have now all reported their recent financial results. The picture that emerges is one of precarious optimism. The cost of producing oil has fallen sharply for these companies in recent years. So, if oil prices were to stay around $50, some (perhaps all) of these companies will be able to turn a profit next year. But it�s far from guaranteed that the oil price will be that high next year (see our recent update on the OPEC �deal� for more background).

For the stocks: Oil companies might be forced to cut their dividends.
Oil companies have said they want to keep the same annual cash payouts to shareholders in future years – and are cutting costs so that they will be able to. However, the stocks are trading at prices that suggest investors fear the oil companies will be not be able to do so. Many investors own oil companies primarily because they have historically paid a steady dividend. If this is imperiled, the stocks will likely react even more poorly.