US shale gas boom takes its toll on Shell as 2012 profits slump 6%

Shell disappointed shareholders today, announcing a surprise,  6% slump in profits for 2012 as it suffered from the fallout of the US shale gas boom.

The FTSE 100 giant was hit last year by rising exploration and production costs. This was particularly apparent in the US where the rush into shale gas in recent years has forced up the cost of labour and equipment at the same time as depressing prices.

Shell reported a $27 billion  (£17 billion) profit for 2012, down from $28.6 billion the year before, as profits from oil and gas production unexpectedly fell in the fourth quarter “due to increased operating expenses, higher depreciation and higher exploration charges”.

The group’s shares fell by 31.5p, or 1.4%, to 2,274p.

Shell sought to soften the blow of its disappointing profits by pledging to hike its dividend for this quarter by 4.7% a share to 45 cents and signalled better times ahead.

“Shell’s efforts to expand its pipeline of potential energy projects are paying off,” said Shell chief executive Peter Voser. “With the first year of our 2012-2015 growth targets completed, Shell is on track for plans we set out in early 2012, despite headwinds last year.”

Its 2012 dividend came in at $1.72 a share, a 2% rise on the year before.

Shell pledged $33 billion of capital spending this year, some of which will go into controversial places such as Nigeria, where a Dutch court found this week that its local subsidiary was partly responsible for pollution, and into the Arctic, where it suffered a series of accidents last year that have raised questions about the safety of its drilling in the region.

Shell cautioned that its Arctic drilling rig, the Kulluk, may not be ready for this summer’s drilling season after running aground on New Year’s Eve. However, it listed the Arctic as being within a series of “future opportunities” on which it is expected to spend $4 billion in 2013.

Profits at Shell’s production division fell from $5.1 billion in 2011 to $4.38 billion, as rising costs outweighed the impact of a 3.3% rise in production to 3.41 million barrels of oil or natural gas equivalent a day, after increases at newer projects in Qatar and Australia outweighed declines at older fields.

The company’s refining arm swung to a $1.2 billion profit, compared to a loss of $278 million. They were boosted by declining competition after refineries such as Coryton in  Essex closed.