Shell Profit Sinks as Weak Refining Adds to Output Losses

Royal Dutch Shell Plc (RDSA) 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 SA in Edinburgh, said today 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 0.9 percent in London, the most since Dec. 3, to 2,174.5 pence in London.

Chief Executive Officer 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.”

Photographer: Krisztian Bocsi/Bloomberg

A Royal Dutch Shell Plc gas station sits illumiinated at night on the A12 highway near Biegen, Germany. Shell is lagging behind its peers, climbing 3.4 percent since the start of 2013 compared with a 15 percent advance for BP Plc and Exxon Mobil Corp.’s 14 percent gain. Close

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Photographer: Krisztian Bocsi/Bloomberg

A Royal Dutch Shell Plc gas station sits illumiinated at night on the A12 highway near Biegen, Germany. Shell is lagging behind its peers, climbing 3.4 percent since the start of 2013 compared with a 15 percent advance for BP Plc and Exxon Mobil Corp.’s 14 percent gain.

Not Expected

Shell climbed 3.4 percent from the start of 2013 through yesterday, compared with a 15 percent advance for BP Plc (BP/) and Exxon Mobil Corp. (XOM)’s 14 percent gain.

“Our 2013 performance was not what I expect from Shell,” van Beurden said today in a statement. “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.

Today’s 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 percent 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.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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