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Shell shock as profits halve for final quarter

ROYAL Dutch Shell has issued a shock profits warning, which highlights the challenges facing new chief executive Ben van Beurden.

DISAPPOINTING: Chief executive Ben van Beurden said the company's performance was unexpected and it will improve.
DISAPPOINTING: Chief executive Ben van Beurden said the company's performance was unexpected and it will improve.

The news that the oil and gas giant expects to suffer a near 50% fall in profits for the fourth quarter of 2013 may increase the chances the company will sell assets in areas like the North Sea as it tries to boost returns.

Mr Ben van Beurden said:"Our 2013 performance was not what I expect from Shell. 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."

Mr van Beurden, who took charge on 1 January, made his comments in the first profits warning issued by Shell since 2004.

The company said fourth quarter figures are expected to be "significantly lower than recent levels of profitability". The statement was issued two weeks ahead of the planned publication of its results for the period.

"Shell has broken with its recent custom of disappointing on earnings day - it is now dishing up the bad news ahead of time," said Neill Morton, an analyst at Investec.

Shell expects to achieve fourth quarter profits of $2.9 billion (£1.8bn) net of one offs and changes in the value of inventories, down 48% on the $5.6bn it made in the last quarter of 2012.

City analysts expected profits of about $4 billion.

The company faced big challenges in the final quarter of what analysts at Barclays Capital described as an "annus horribilis" for Shell.

The key upstream division recorded higher exploration costs but produced less oil and gas than in the same period of 2013.

Shell expects to record one off charges of $2.7bn for 2013, including $0.7bn for the fourth quarter, which it said mainly reflect falls in the value of the exploration and production portfolio.

It said the exploration and production business continued to make losses in the Americas, where Shell has struggled to generate the returns it wanted on its heavy investment in shale assets.

The security situation in Nigeria remained challenging, it said.

The company noted "significantly weaker" conditions in the refining industry, especially in Europe and Asia Pacific. Refineries in these areas are facing competition from rivals in the US, which are benefiting from supplies of cheaper shale oil.

Neil Shah, analyst at Edison Investment Reserch, said: "The weaker refining conditions Shell faces may just point to an economic recovery that is far more patchy than most expect."

Mr van Beurden may look to increase the pace of disposals and to cut costs at Shell, which has come under pressure to trim spending and increase payouts to investors.

On Wednesday the company declined to comment on a report that it will sell some North Sea fields under a plan to raise $15bn from disposals over the next two years.

In November, Shell's chief financial officer, Simon Henry, appeared to indicate assets off eastern Scotland may be sale candidates.

Mr Henry said then: "We have central North Sea assets which are part of some of the operational challenges that we have. These are mature assets and we need to be thinking about future decommissioning."

But Mr Henry said he expected Shell's holdings in the giant Clair Ridge and Schiehallion fields west of Shetland would be "quite important" parts of its portfolio for years.

The 55-year-old Mr van Beurden began working alongside outgoing boss Peter Voser at the beginning of the fourth quarter. The company has cancelled plans to build a costly gas-to-liquids (GTL) plant in the United States since then.

A former head of refining at the company, he was described by one former executive as "The Quiet Man' within Shell - but enormously determined".

Mr Voser, who had been chief executive since July 2009, announced plans to retire from the role in May, to spend more time with his family.

Royal Dutch Shell A shares closed down 1%, 20.5p, at 2174.5p in London.

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