The new chief executive of the oil giant Shell dropped a bombshell on investors yesterday with a major profit warning just two weeks into the job.
Ben van Beurden, the Dutchman who took over from Peter Voser tow weeks ago, warned that fourth-quarter profit would be "significantly lower" than last year due low production volumes, high exploration costs and continued problems with refining. Security problems in the volatile Nigerian Delta were also blamed.
Mr van Beurden declared that this "was not what I expect from Shell", and forecast that profits for the final quarter would come in at just $2.2bn (£1.3bn), less than a third of its $7.3bn surplus a year earlier.
Shares in the company tumbled sharply in the morning, wiping as much as £6.5bn off its stock market value. But they later recovered to close down only 1 per cent, or 26.5p, at 2,279.5p.
Analysts explained the partial recovery in the shares as being the result of that classic trick of the "new broom" boss – to say the business is in a poor state, so as to take the credit for any improvements. "Bulls will be saying this is just a kitchen sink job," said one analyst.
Others said Shell had reported poor numbers last year, so it was not an entirely new trend.
Analysts had been expecting profits of around $4bn. Profits for 2013 as a whole are now forecast to fall by about 38 per cent to $16.8bn, Europe's largest oil company said.
Mr van Beurden said: "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."
He blamed the low production volumes on the high level of maintenance required over the period and continuing security problems in Nigeria, while the downstream division suffered from increased competition from new super-refineries in Asia. Shell said it would take a $700m charge on its exploration and production activities.
"It's not good. When you're talking about higher costs and lower production volumes, it's a lethal combination," said Nick Xanders, who heads European equity strategy at BTIG, the trading and brokerage firm. "It's symptomatic of the entire market, with costs rising but revenues not coming through. Some hope that it's a company thing, but I don't think it is."
Shell said it was continuing to make a loss in the US, where the shale gas boom has dragged down prices. Falling oil and gas prices also played a part in the profit decline, it said.
Its announcement continues a string of disappointments over the past year. Earlier this week, it revealed plans to sell off some of its North Sea oilfield investments, and last year it began selling off interests in the US shale gas industry. Also, last month, it cancelled a $20bn project to build a gas processing plant in Louisiana.
Shell will announce full-year results on 30 January. It said it expects its upstream production division to have made a $2.5bn profit in the fourth quarter, down from $4.4bn a year earlier. Profit at its downstream unit is expected to have fallen from $1.2bn to $0.5bn.Reuse content