Shell Profit Misses Estimates on Falling Production (Update8)
By Fred Pals and Eduard Gismatullin
Jan. 31 (Bloomberg) — Royal Dutch Shell Plc, Europes
biggest oil company, posted fourth-quarter earnings that missed
analysts estimates for the first time in two years because of a
decline in production and lower refining margins.
Excluding inventory changes and one-time items, profit was
$5.72 billion, less than the $6.03 billion median forecast of
eight analysts surveyed by Bloomberg. Net income climbed 60
percent to $8.47 billion, or $1.36 a share, from $5.28 billion,
or 83 cents, in the year-earlier quarter, The Hague-based Shell
said today in a statement.
Output fell for a fifth straight year after Shell ceded a
stake in Russias Sakhalin-2 venture and militant attacks in
Nigeria kept fields offline. Chief Executive Officer Jeroen Van
der Veer said state-run oil companies are demanding better terms
when negotiating energy ventures and this trend will continue.
Profit from refining fell 40 percent in the period and margins
will stay weak in 2008, he said.
“Im modestly disappointed, Jason Kenney, an analyst at
ING Wholesale Banking in Edinburgh with a “hold rating on the
stock, said in an interview. “The risk is to the downside with
Nigeria. Youve got a lot of unknowns on the horizon and
refining margins are going to be quite low this year.
Shells London-listed Class A shares rose 0.1 percent to
1,791 pence. The stock is down 15 percent this year, compared
with a 14 percent decline for BP Plc, Europes second-biggest
oil company, which reports earnings on Feb. 5.
Analyst Recommendations
Of the 38 analysts tracked by Bloomberg who cover Shell, 21
have a “buy rating and three advise selling the stock.
Fourteen have `hold recommendations. Shells annual net income
was $31.3 billion, a record for a European company.
ConocoPhillips, the third-largest U.S. oil company, said
Jan. 23 that fourth-quarter net income jumped 37 percent to
$4.37 billion on high oil prices. Exxon Mobil Corp., the worlds
biggest oil company, and Chevron Corp., No. 2 in the U.S.,
report earnings tomorrow.
Oil prices in New York were 50 percent higher in the fourth
quarter compared with a year earlier, reaching a record $100.09
on Jan. 3. Prices will continue to fluctuate for some time to
come, Van der Veer told a press conference. “If you think about
oil prices, you will have to expect ongoing volatility.
Refining margins, or profits from turning crude into fuels
such as gasoline and diesel, fell to $5.68 a barrel in the
fourth quarter from $6.40 in the year-earlier period, according
to data posted on BPs Web site.
Output Disruptions
A fire at Shells 155,000 barrel-a-day Athabasca oil-sands
mine in Alberta and repairs at the 458,000 barrel-a-day Pulau
Bukom refinery in Singapore crimped output during the quarter.
“I expect an environment of weaker margins and we have to
deal with a relatively weak dollar this year, Van der Veer
said.
Shell said that net capital spending will rise to between
$24 billion and $25 billion this year, reflecting higher
industry costs.
Van der Veer said today that the company had 11 “material
discoveries last year, adding about 1 billion barrels of oil
and gas resources. Some of these resources will have to be
verified before they can be booked as reserves.
In a letter to employees dated Jan. 22, Shells CEO said
global demand for energy will outstrip supply within seven years
because of “population growth and economic development. After
2015 supplies of easy-to-access oil and gas will no longer keep
up with demand.
`Very Hard
“Its very hard for Shell to keep coming up with new
reserves, new big oil fields that can actually make a
difference, Andy Brough, who helps oversee $6.5 billion in
assets as executive director at Schroder Investment Management
Ltd. in London, said in a Bloomberg Television interview.
Full-year oil and gas production, including oil sands, fell
to 3.32 million barrels of oil equivalent a day in 2007,
compared with 3.47 million barrels a day the previous year. The
company had previously expected full-year output of between 3.3
million and 3.5 million barrels a day.
“In the next decade, we would expect 2 to 3 percent growth
from our organic capital programme, Chief Financial Officer
Peter Voser told the press conference. “We would see production
in 2008 slightly below 2007.
One-time items provided a net gain of $963 million to
Shells fourth-quarter profit, and that included exploration and
production division divestment gains of $1.5 billion and a $716
million charge related to funding shortfalls and security in
Nigeria.
Lower Stake
Shell has been losing Nigeria production since late 2005
after militants attacked oil installations in the Niger Delta.
The raids have forced Shells venture in the country, Africas
biggest producer, to halt output of about 500,000 barrels a day,
almost a quarter of the nations output.
In Russia, Shell suffered a setback at the hands of OAO
Gazprom when the state-run company in 2007 completed its
purchase of a majority stake in the Sakhalin-2 oil and gas
project. That cut Shells stake in half to 27.5 percent.
Shell slashed its proven oil and gas reserve estimates in
January 2004, which led to fines, investor lawsuits and the
removal of the companys top three executives, including
Chairman Phil Watts.
The company will publish last years reserve replacement
ratio, which states the percentage of production replaced by new
discoveries, in its annual report. The company is also due to
give a strategy update on March 17.
To contact the reporters on this story:
Fred Pals in Amsterdam at
