Shell issues shock profit warning

Shell is not so much on fire as jumping off a burning platform, after it admitted full-year profits are likely to be half what it expected.

by Emma Haslett
Last Updated: 04 Feb 2014

Blimey: new Shell chief exec Ben van Beurden has barely had enough time to put the pictures up in his new office – but now he’s found himself hauled into the spotlight this morning, issuing a shock profit warning.

Van Beurden seemed more surprised at what he was saying than anyone else. Having admitted that profits this year will be ‘significantly lower’ than expected, he added that ‘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.’

Admittedly, this is an opportunity for van Beurden to get all of the bad news out of the way at the beginning of his tenure - but ‘not what I expect’ is a bit of an understatement: Shell cut its forecast for full-year profits on current cost of supplies basis, excluding identified items, to $2.9bn (£1.8bn), from its original $4bn. If you factor in writedowns of $700m, that brings profits down to about $2.2bn. Not surprisingly, shares in the oil giant dropped by 4% in early trading.

It’s been a tough year for Shell: weak refining profit margin, higher production costs and ‘the security situation’ in Nigeria (ie. oil theft) have conspired to bring down profits. Back in October Peter Voser, van Beurden’s predecessor, warned that Shell had ‘entered a divestment phase’, when third-quarter profits dropped by nearly a third to $4.5bn, missing analysts’ expectations of $4.9bn.

This is particularly frustrating, considering that in October bitter rival BP posted figures showing third-quarter revenues had risen by $4bn to $98bn. Shell, meanwhile, is having to endure the indignity of selling off $30bn of assets to make sure it stays in business.

Despite all this, though, investors seem to be looking for the bright side.

‘We think the market should become more sanguine as it… recognises that Shell is taking a last opportunity for a bit of a bath,’ said Peter Hutton from RBC Capital Markets.

‘We view the news as disappointing, but it should provide an opportunity to buy for those who missed the recent run.’

That’s the spirit.

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