Shell profit declines 20% on Nigeria, U.S. shale charges

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, said second-quarter earnings fell 20 percent on Nigerian output disruptions and charges related to its North American shale assets.

Profit excluding one-time items and inventory changes slid to $4.6 billion from $5.7 billion a year earlier, The Hague-based company said today in a statement. That missed the $6 billion average estimate of nine analysts surveyed by Bloomberg.

“Higher costs, exploration charges, adverse currency exchange rate effects and challenges in Nigeria have hit our bottom line,” Chief Executive Officer Peter Voser said in the statement.

Shell expects to continue losing money from oil and gas production in Americas this year. It booked a $2.1 billion impairment in the quarter mostly related to “liquids-rich shales properties in North America” and started a strategic review of its U.S. and Nigerian onshore assets.

“They are pulling back from what you could say was too much exposure to North American shale,” said Iain Reid, an analyst at Jefferies International Ltd. in London. “They haven’t been as successful as they thought they’d be. It’s a pretty big number.”

Shell said it plans to start five major projects in the next 18 months, which should add more than $4 billion to 2015 cashflow. Voser, who will retire at the end of the year, has been overseeing a $100 billion investment program through 2014.

‘Right Track’

“Over the next 18 months clearly we’ll be back in a profitable total upstream Americas business,” Voser said in a Bloomberg TV interview. “So we are on the right track.”

Shell dropped as much as 5.1 percent in London trading, the steepest intraday decline since April 12 last year. The shares were down 4.5 percent at 2,137 pence as of 8:55 a.m.

Shell holds a 25.6 percent stake in Nigeria LNG Ltd., Africa’s biggest liquefied natural gas exporter, which last month agreed under protest to pay $140 million in disputed levies to the nation’s maritime agency to end an export blockade. “Oil theft and disruptions to gas supplies in Nigeria are causing widespread environmental damage, and could cost the Nigerian government $12 billion in lost revenues per year,” Voser said.

Profit fell because of the $450 million impact of the weaker Australian dollar on a deferred tax liability. It was also curbed by $250 million in Nigeria, due to “the deteriorating operating environment,” which resulted in the loss of about 100,000 barrels of oil equivalent a day of production in the quarter. Exploration expenses increased to $1.2 billion due to well write-offs of about $600 million in the period.

Lower Output

Output declined by about 1 percent to 3.062 million barrels of oil equivalent a day in the quarter from last year. Shell plans to raise volumes to about 4 million barrels a day as soon as 2017. The company boosted output at its $19 billion Pearl gas-to-liquids venture in Qatar, reaching full capacity in January.

Shell is the last of Europe’s biggest oil producers to publish earnings; BP Plc and Total SA saw their first-quarter profits drop on lower oil prices. Exxon Mobil Corp. reports results later today.

Chief Financial Officer Simon Henry and Andy Brown, head of upstream, missed out on the top job after Shell chose refining director Ben van Beurden to succeed Voser from next year.

U.K. gas prices were about 16 percent higher in the first quarter from a year earlier because of higher demand for heating. U.S. prices for the fuel rose about 71 percent in the period.

Of the 28 analysts that cover Shell, 16 recommend buying the shares, nine have hold ratings and three advise selling the stock.
The company will hold a Webcast of second-quarter earnings at 1:30 p.m. London time.