Shell Profit Falls More Than Expected as Oil Prices Drop

Shell Profit Drops With Oil as Maintenance Limits Production
Shell in April indicated that field maintenance would cut extraction by about 50,000 barrels of oil equivalent a day in the second quarter. Photographer: Simon Dawson/Bloomberg

Royal Dutch Shell Plc, Europe’s biggest oil company, reported a larger decline than expected in second-quarter earnings as crude prices dropped and maintenance work on fields held back production.

Profit fell 13 percent, excluding one-time items and inventory changes, to $5.7 billion, The Hague-based Shell said today in a statement. That missed the $6.3 billion average estimate of 10 analysts surveyed by Bloomberg. Benchmark Brent crude futures slid 7 percent from a year earlier to average $108.76 a barrel on slowing global economic growth.

“I am concerned that the economy slows down,” and “it’s a patchy picture at the moment,” Chief Executive Officer Peter Voser said in a Bloomberg Television interview. “But I take a much longer, longer view on the three-to-five year time horizon and I see demand coming back strongly.”

Shell Class A shares fell 2.3 percent to 2,137.5 pence in London.

Shell profit missed analyst estimates mostly because of “planned maintenance activities, which impacted production volumes,” Jean-Charles Lacoste, an analyst at Credit Agricole Cheuvreux SA, said in a report. At the same time, “natural gas realizations in the Americas decreased by 52 percent.”

Norway’s Statoil

BG Group Plc, the U.K.’s third-largest natural-gas producer, today said profit declined by 77 percent because of a charge on U.S. assets, where gas prices fell to the lowest in a decade this year. Norway’s Statoil ASA also said profit dropped. Exxon Mobil Corp. earnings missed analyst estimates.

Net income dropped to $4.06 billion from $8.66 billion a year earlier. Shell produced 3.103 million barrels of oil equivalent a day in the quarter, up from 3.046 million a year ago. The company plans to raise volumes to about 4 million barrels a day as soon as 2017.

Shell in April indicated that field maintenance would cut extraction by about 50,000 barrels of oil equivalent a day in the second quarter. Voser said today that Shell has extended works at its Pearl gas-to-liquids plant in Qatar into the third quarter. The start of the expanded Motiva refinery at Port Arthur in Texas resulted in a leak and fire in June, closing a crude unit until 2013.

Repair Costs

Shell and partner Saudi Arabian Oil Co. still have to estimate the costs of the Port Arthur refinery repair and its impact on earnings, Voser said. “None of us are happy with this incident and we are working hard to turn this around.”

The company’s net gearing dropped to 8.1 percent from 12.1 percent a year earlier.

Voser is examining plans to expand into East Africa, where explorers have made the largest natural-gas discoveries in a decade. Shell, which has indicated interest in Mozambique gas fields, has started talks with Anadarko Petroleum Corp. after it dropped a bid for Cove Energy Plc, Anadarko’s partner in the African nation.

“East Africa is obviously a new gas province, which is coming up fast,” Voser said today. “We have exploration there in Tanzania, but we are watching the situation very carefully” and “this is a province which is of interest.”

Shell said it had paid $500 million for Hess Corp.’s share in the U.K.’s Schiehallion field.

Alaska Drilling

The Anglo-Dutch company plans to invest $1 billion in exploration off Alaska this year after several years of delays. The company, which has invested about $4.5 billion in preparation, had a setback this month when a drilling ship slipped mooring and drifted toward shore, once again raising environmental concerns.

“Ice conditions will dictate how long drilling season will last,” Voser said. The company plans to drill at least two wells this year starting as soon as August.

In February, Voser agreed to raise the dividend this year for the first time since 2009 on a forecast for a 50 percent increase in cash flow from operations through 2015 because of new projects.

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