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Shell profit slumps amid weak refining markets

01.17.2014  | 

Higher exploration expenses and maintenance shutdowns have cut output volumes, while a weaker refining market and disruptions in Nigeria have also pushed down profit and limited share growth.



Royal Dutch Shell said profit plunged because of deteriorating refining markets and mounting losses in the Americas, surprising investors with an early earnings report that wiped out $10 billion in shareholder value.

Europe’s biggest oil company, in its first profit warning since 2004, said adjusted earnings excluding one-time items and inventory changes were about $2.9 billion in the fourth quarter. That compares with $4.5 billion in the previous three months and an average fourth-quarter analyst estimate of $4.9 billion.

“It’s a shock,” Jason Kenney, an analyst at Banco Santander in Edinburgh, said Friday by telephone. Shell had “to pre-announce to get the market to reality, but even so it’s a very weak set of results.”

Shell fell as much as 4.4% in London trading, the most since Oct. 31, and was down 2.1% at 2,148.5 pence as of 1:11 p.m. local time.

CEO Ben van Beurden, who took over from Peter Voser at the start of the year, is facing rising costs for new projects and stagnant oil prices. Higher exploration expenses and maintenance shutdowns have cut output volumes, while a weaker refining market and disruptions in Nigeria have also pushed down profit and limited share growth.

The impact on Shell’s 2014 performance will be “relatively limited, and despite the bad news, we are quite sanguine about Shell,” said Peter Hutton, an analyst at RBC Capital Markets in London. “It’s a reminder that Shell are tackling the issues. It’s an opportunity to get the store ready for the new CEO coming in.”

Not Expected

Shell climbed 3.4% from the start of 2013 through yesterday, compared with a 15% advance for BP and ExxonMobil's 14% gain.

“Our 2013 performance was not what I expect from Shell,” van Beurden said Friday. “Our focus will be on improving Shell’s financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.”

Results also missed analyst estimates in the third quarter as profit from refineries sank and crude theft and sabotage in Nigeria cut output. Shell has promised to curb net spending on projects by offsetting costs with a faster pace of asset sales.

The announcement comes two weeks before the company’s scheduled earnings release. Full-year 2013 earnings are forecast to be $19.5 billion, with both production and refining results lower than a year earlier, the company said. The Hague-based Shell reported profit of $25.1 billion for 2012.

Brent crude prices, the benchmark for more than half the world’s oil, slipped 0.3% last year, the first time that prices failed to gain since 2008.

Shell expects net capital investment to be about $15.8 billion for the fourth quarter. For 2013, net investment will be about $44.3 billion.

The company may report a $1 billion charge for the quarter mostly because of unsuccessful exploration drilling, such as in French Guiana, RBC’s Hutton estimated.

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John Brown

I think Shell got what it deserves in Nigeria since the organization took part in cutting corners & play along with full knowledge & involvement on corruption in the Delta Ogoniland of Nigeria, but portrait a different face in Europe to its shareholders.....what goes around comes around as reflected on the company's image & economy

Victor Ross

SHELL only made 2.9 billion, instead of 4.9 billion? and somehow at least one reader is supposed to be sad for SHELL? and look at BP's earnings, despite the oil spill.....amazing!!

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