Shell suffers big drop in profits

Royal Dutch Shell’s third quarter profits undershot analysts’ forecasts yesterday as weak refining profit margins, higher production costs and output stoppages in Nigeria weighed on its performance.

Third quarter earnings excluding identified items and on a current cost of supply basis came in at $4.5bn compared with a forecast range of between $4.9bn and $5.1bn, down from $6.6bn a year ago.

Expectations had been high after better-than-forecast BP results on Tuesday.

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Chief executive Peter Voser, who steps down from the western world’s number three oil company at the end of the year, said actions taken on costs and shareholder payouts during the year so far “underline our commitment to shareholder returns”, echoing an industry theme for the quarter as the sector underperforms the broader market and investors fear rising costs will eat into capacity to pay dividends.

The big drop in Shell profits was led by the significantly weaker industry refining conditions, that have been widely flagged by the company and others in the industry.

But rising costs in both production and finding operations in the main oil and gas division were also a major factor along with production impacts from maintenance and asset replacement activities.

The fall also reflected the impact of pipeline outages in Nigeria, much of which Shell puts down to sabotage and theft, and lower dividends from a Liquefied Natural Gas (LNG) venture.

On the upside, Shell benefited from higher contributions from chemicals and increased production of LNG – an industry it has bet much of its future on.