Royal Dutch Shell Plc’s record $54 billion acquisition of BG Group Plc is starting to pay off as the assets give it higher production and cash flow, helping it beat analysts’ earnings estimates when it reported quarterly results Wednesday.

While Europe’s biggest oil company benefits from BG’s assets, it’s cutting expenses quickly enough to ensure the takeover isn’t adding any new costs. Shell’s forecasts for capital spending and operating expenses this year are now at the same level they would have been even if it hadn’t bought BG, Chief Financial Officer Simon Henry said. A majority of the 16 percent increase in oil and gas output came from the acquisition.

Chief Executive Officer Ben Van Beurden, who staked his reputation to buy BG as oil prices sank, is banking on those assets to help Shell ride out the downturn. The company has promised to deliver savings from the synergies with BG faster than it initially forecast and at a lower cost. Shell is reducing oil exploration expenses, closing offices across the U.K. and eliminating jobs following the takeover.

“The aim to have flat operating costs and spending, even with BG included, is a good objective,” said Jason Kenney, an Edinburgh-based analyst at Banco Santander SA. “It shows the integration process is going well, so far.”

BG produced 796,000 barrels a day in the quarter. Since the deal was completed in mid-February, it contributed 522,000 barrels to Shell’s quarterly oil and gas output, which rose to 3.66 million barrels a day. About $200 million of earnings and $800 million of cash flows came from BG’s assets in the quarter.

Together with better-than-expected earnings from its refining and chemicals businesses, BG helped Shell beat analysts’ profit estimates in the first quarter. Profit adjusted for one-time items and inventory changes fell 58 percent to $1.6 billion, exceeding the $1.18 billion average of analysts’ estimates compiled by Bloomberg.

Its capital investment in 2016 is “trending toward” $30 billion from previous guidance of $33 billion, and 36 percent lower than the combined investment of Shell and BG in 2014. Operating expenses are moving toward $40 billion this year compared with a combined $53 billion in 2014, according to Wednesday’s earnings statement.

“The key takeaway from Shell’s results is the continued momentum on all areas necessary to ensure a successful BG integration,” said Oswald Clint, a London-based analyst at Sanford C. Bernstein. “Integrating BG’s spending and costs is no mean feat.”

Yet, challenges remain for Shell. It’s still unable to cover its spending and dividend payouts with cash flows at current oil prices. While its London-based rival BP Plc said last week it could balance its books at oil prices of $50 to $55 a barrel next year, Shell’s Henry declined to provide guidance.

How successful Shell is in its $30 billion asset-sale program will determine how quickly it can balance its sources and use of cash. Crude’s slump has meant oil fields are not attractive to buyers. Still, Shell plans sales in the U.K. North Sea and Gabon, Henry said, though they won’t be “fire sales.”

“Key for Shell will still be divestments over 2016 to 2018,” Kenney said. “So markets might question free cash flow support of this objective.”

Shell’s B shares in London, the most widely traded, fell 2.3 percent to 1,721 pence at 12:59 p.m. local time. The stock has gained 12 percent this year after a 31 percent decline in 2015. It’s the best performer this year among the world’s five biggest non-state oil companies, which include Exxon Mobil Corp. and Chevron Corp.

Cost cuts and support from oil refining, trading and chemicals have benefited most of the biggest oil companies. For Shell, BG’s assets are an added boost.

“It shows the integration process is going very well,” said Jason Gammel, a London-based analyst at Jefferies International Ltd. “Essentially Shell has integrated BG with no increase to its prior cost structure.”

•Sourced from Boomberg.

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