Shell says quarterly earnings will fall 48 percent

Stanley ReedThe New York Times

LONDON -- Roughly two weeks into his job, the chief executive of Royal Dutch Shell warned Friday that the oil company's fourth-quarter results would be lower than financial markets had anticipated.

"Our 2013 performance was not what I expect from Shell," the executive, Ben van Beurden, said in a statement as the company announced that adjusted earnings for the quarter would shrink to $2.9 billion, a 48 percent decline compared with the period a year earlier.

Shell, which is based in The Hague, blamed the poor performance on weak industry conditions in refining, higher exploration expenses and lower production of oil and natural gas.

"We're a bit shellshocked this morning after this profit warning, which is highly unusual for an integrated oil company," analysts at Bernstein in London wrote in a research note.

Analysts had expected $4.9 billion in adjusted earnings for the quarter, according to Bloomberg News. Shell also took a $700 million impairment write-down.

Van Beurden, who was head of refining at Shell when he took over the top job at the beginning of the year from Peter Voser, who was retiring, seems to have inherited a situation that has grown more difficult since his promotion was announced last year.

Neill Morton, an Investec analyst, wrote in a note that "Shell has broken with its recent custom of disappointing on earnings day. It is now dishing up the bad news ahead of time."

Van Beurden said the company's "focus will be on improving Shell's financial results" and "achieving capital efficiency."

It's possible that van Beurden and Shell are using the early days of his tenure as "a last opportunity for a bit of a bath" -- to get as much bad news out of the way as early as possible -- Peter Hutton, an analyst at RBC Capital Markets in London, suggested in a note to clients.

The company has now reported three straight quarters of disappointing earnings, and it may be tough for a new chief to turn things around quickly. The oil industry is a long-term business, and it takes years to develop oil fields and other installations that which, once completed, usually operate for decades.

The disappointing earnings "won't just stop because of a new guy" at the helm, Oswald Clint, an analyst at Bernstein in London, said in an interview.

Full earnings are scheduled to be released Jan. 30.

Shell's recent results have suffered from a series of factors, some of which are likely to persist. Unrest in Nigeria has lowered oil and gas production, and the company is losing money in its key Americas exploration and production business, where its multibillion dollar Alaska drilling program has been plagued by accidents and problems.

Shell has also been hurt by the poor environment for refining crude oil into products like gasoline and diesel, especially in Europe, where demand for gasoline has weakened. Analysts say that nearly all refineries in Europe are losing money because they are unable to sell refined products for more than the cost of crude oil and processing.

Van Beurden could begin to make a difference by being more selective about capital expenditures. Shell is spending heavily on oil and gas projects. The company said it expected net capital expenses for the fourth quarter to be about $15.8 billion. All of the major oil companies are under pressure from investors to rein in spending. Shell announced last month that it would drop plans to build a $20 billion gas-to-liquids plant in Louisiana that would have converted natural gas to fuels like diesel.

The New York Times