Unwelcome start for chief as Shell issues profit alert

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Royal Dutch Shell’s new boss Ben van Beurden made a gloomy start to his tenure as he issued a shock profit warning just two weeks after taking over at the helm.

Mr van Beurden – who succeeded Peter Voser as chief executive on January 1 – said the firm’s fourth quarter figures were expected to be “significantly lower than recent levels of profitability”.

The oil giant blamed higher exploration costs and ongoing woes in refining for the poor end to its year.

Shell said a range of factors, including hefty writedowns, were expected to see fourth quarter earnings plunge 70 per cent and full year earnings drop 38 per cent.

Mr van Beurden admitted: “Our 2013 performance was not what I expect from Shell.”

Shell expects to reveal writedowns of £429m for the fourth quarter and £1.7bn for the full year relating to its upstream business when it posts annual results on January 30.

These will contribute to a plunge in fourth quarter earnings to around £1.3bn and 2013 earnings to about £10.3bn, the group said.

With writedowns stripped out, fourth quarter underlying earnings are now expected to almost halve to around £1.8bn, with annual results 23 per cent lower at around £11.9bn.

Analysts had been pencilling in fourth quarter underlying earnings of £2.4bn.

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.”

The profits alert comes after an already difficult past few months for the Anglo-Dutch group, which disappointed the market last year when third quarter underlying profits slumped by a worse-than-expected 32 per cent.

This was largely caused by a 49 per cent drop in downstream profits as a result of weaker refining conditions caused by industry overcapacity and poor demand.

Oil analyst Neill Morton, at Investec Securities, said Shell rarely issues profit warnings ahead of its full-year earnings.

He added: “Shell has broken with its recent custom of disappointing on earnings day – it is now dishing up the bad news ahead of time.”

Rival BP also saw shares come under pressure after Shell’s warning.

The entire sector has already been suffering from low refining margins – how much money is made from processing crude oil into petrol and diesel.

Neil Shah, analyst at Edison Investment Research, said: “The weaker refining conditions Shell faces may just point to an economic recovery that is far more patchy than most expect.

“If Shell catches a cold the rest of the oil sector will always wonder if they will catch flu.”

Mr van Beurden is likely to face questions over his strategy plans at the upcoming full-year results.