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Shell Profit Misses Analyst Estimates as Global Output Drops

Shell Gas Station
Royal Dutch Shell Plc has forecast net capital expenditure of about $40 billion this year and plans to invest as much as $130 billion in 2012-2015. Photographer: Andrey Rudakov/Bloomberg

Royal Dutch Shell Plc, Europe’s biggest oil company, reported third-quarter earnings that missed analyst estimates as profits at refineries plunged, disruption in Nigeria cut output and spending increased.

Profit excluding one-time items and inventory changes fell 32 percent to $4.5 billion from $6.6 billion a year earlier, The Hague-based Shell said in a statement. That missed the $5.3 billion average estimate of 11 analysts surveyed by Bloomberg. Spending on projects and acquisitions will reach $45 billion this year, the company said, $5 billion more than expected.

Oil and gas production dropped 2 percent worldwide because of disruptions in Nigeria, and margins at oil refineries fell in the third quarter because of overcapacity in Europe, where fuel demand is falling. Chief Executive Officer Peter Voser, who steps down at the end of the year, said Shell would cut net spending next year by increasing the pace of asset sales.

“We are facing headwinds from weak industry refining margins, and the security situation in Nigeria,” Voser said in today’s statement. “Shell has a strong project flow in place for 2014 and beyond.”

Shell shares fell 4.9 percent to 2,076.5 pence in London, the most since August 2011.

Shell plans to sell more assets in the coming two years to hit a target of net capital expenditure of $130 billion from 2012 to 2015.

Refining Drops

Earnings from refining and marketing almost halved to $892 million in the third quarter from a year ago, Shell said. The company pumped 2.931 million barrels of oil equivalent a day in the quarter, about 2 percent lower than a year earlier, amid production interruptions in Nigeria.

Net income fell 35 percent to $4.7 billion.

“These were very disappointing results, made all the more so by guidance on capex,” analysts at Deutsche Bank AG said in a note to clients. Maintenance work in Nigeria, Qatar and the U.K. mean “earnings are likely to remain challenged in the coming quarter.”

Shell’s chief financial officer, Simon Henry, defended the company’s record on investment. This year’s total includes about $10 billion in acquisitions including LNG assets from Repsol and and assets in Brazil, while divestments in Nigeria, the U.S. and U.K. have been deferred until next year, he said.

“It would be easy to get to cheap headlines and the cheap boost to the stock price by cutting investment,” Henry said on a phone call with reporters. “It’s in nobody’s long-term interest. We take criticism for the time being, so be it. We can afford to invest.”

Exxon Mobil

France’s Total SA today said third-quarter earnings decreased 19 percent to 2.7 billion euros ($3.7 billion) on lower refining margins. BG Group Plc said adjusted profit slipped 4 percent to $1.1 billion on lower production. Exxon Mobil Corp., the world’s largest oil company, said profit fell 18 percent in the third quarter.

Shell, which operates almost half of Nigeria’s production, has shut the Trans Niger oil pipeline five times since July because of fuel theft. The West African nation has been losing $100 million a month because of oil-pipeline sabotage and shutdowns, Chief Financial Officer Simon Henry estimated in May.

Security Situation

Profits were reduced by $300 million by “the deteriorated security situation onshore Nigeria and a blockade of Nigeria LNG,” it said today. Shell also took a $176 million net charge in the quarter, “predominantly related to various offshore properties in North America.”

Shell’s refining head, Ben van Beurden, will succeed Voser next year. Among the large-scale projects he will take on is the Libra field off Brazil, won by the company and its partners this month. Shell has forecast net capital expenditure of about $40 billion this year and plans to invest as much as $130 billion in 2012-2015.

Van Beurden will also seek to restore profit at Shell’s North American operations. Shell started selling U.S. shale assets after booking a $2.1 billion impairment this year. Shell in August scrapped a 4 million-barrel-a-day target for total output in 2017.

Shell took over the Coulomb North field project, which is pumping about 10,000 barrels of oil equivalent a day in the Gulf of Mexico, the company said today. It sold its interest in the downstream business in Ghana.

Shell will proceed with the Carmon Creek project in Alberta, Canada, the company said in a separate statement. The project is expected to produce as much as 80,000 barrels a day.

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