Royal Dutch Shell posts profit lower than estimates

Royal Dutch Shell Plc announced that it expects its fourth-quarter profit to be “significantly lower than recent levels”. The main reasons for this decline are deteriorating refining markets in oil products industry, current oil and gas prices and mounting losses in North and South America.

This is the first profit warning of the oil company since 2004. Royal Dutch Shell Plc explained that its current cost of supplies adjusted earnings excluding one-time items and inventory changes are estimated to about 2.9 billion dollars during the fourth quarter of 2013. Current cost of supplies (CCS) is an industry standard of measuring earnings and excludes identified items and strips out unrealized gains or losses related to changes in the value of fuel inventories.

In comparison, the company posted a third-quarter profit estimated to 4.5 billion dollars. Analysts forecast an average fourth-quarter profit of 4.9 billion dollars. That is why one of the analysts working for Banco Santander SA – Jason Kenney – said: “Its a shock. Shell had to pre-announce to get the market to reality, but even so its a very weak set of results.”

Ben van Beurden, who is the current Chief Executive Officer of the company and a successor of Peter Voser is now facing the new projects rising costs and stagnant oil prices. Output volumes have been cut thanks to higher exploration expenses and maintenance shutdowns. The profit of Royal Dutch Shell have also been influenced by the weaker refining market and disruptions in Nigeria, which also limited the share growth.

The Chief Executive Officer van Veurden made a statement today, saying: “Our 2013 performance was not what I expected from Shell. Our focus will be on improving Shells financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.”

Malcolm-Graham-Wood, who is a founding partner at Hydrocarbon Capital, commented on the situation in a note: Its certainly a big disappointment and not what the market was expecting. Theyre not in any trouble but the point is in this quarter they would have been hit in nearly every area. If however, it means that Shell is in for a bit of radical restructuring and better capital efficiency then thats not a bad thing and a sub 10% fall in the share price is a price worth paying.”

The company posted a forecast of its full-year 2013 profit, which is estimated to 19.5 billion dollars, with both production and refining results lower than the ones in 2012.

According to Bloomberg, the current share price of Royal Dutch Shell Plc is 2.14% down, and its one-year return rate is 3.81% up.