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Shell Posts First Loss in 10 Years as Oil Prices Drop




By Fred Pals

Jan. 29 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, posted its first quarterly loss in 10 years after lower oil prices reduced earnings from exploration and production and the value of inventories fell.

The fourth-quarter net loss was $2.81 billion after an $8.47 billion profit a year earlier, The Hague-based Shell said today in a statement.

“Industry conditions remain challenging,” Chief Executive Officer Jeroen van der Veer said. Oil companies are reining in capital spending and putting marginal projects on hold following last year’s 54 percent drop in prices. Crude fell to a four-year low of $32.40 a barrel on the New York Mercantile Exchange on Dec. 19, after peaking at $147.27 on July 11.

“It’s a weak set of results as was expected,” Jason Kenney, an Edinburgh-based analyst at ING Wholesale, said in a telephone interview. He has a “hold” rating on the stock.

Excluding gains or losses from inventories and one-time items, earnings were $3.89 billion. The median estimate of 12 analysts surveyed by Bloomberg was for profit of $4.13 billion on this basis. Shell also had a currency loss of $351 million.

Shell’s Class A shares fell 0.5 percent to 1,768 pence as of 8:05 a.m. in London. The stock lost 15 percent last year.

Fourth-quarter profit on a current cost of supplies basis fell to $4.8 billion from $6.7 billion, while full-year profit on the same basis rose to $31.4 billion from $27.6 billion.

First Time

Peter Voser, Shell’s Swiss-born chief financial officer, will take over as chief executive officer in July, succeeding van der Veer, who will retire, Shell said in October. It’s the first time in Shell’s 102-year history that the top job has gone to a national from outside the U.K. or the Netherlands.

Production fell for a sixth consecutive year because of militant attacks in Nigeria, asset sales and a reduction in crude received under production-sharing contracts.

Shell’s annual average output slipped 2 percent to about 3.25 million barrels of oil equivalent a day, from 3.32 million barrels a year earlier, the company said. Fourth-quarter production was little changed at 3.42 million barrels equivalent a day compared with the year-earlier period.

Shell plans to counter lost production in Nigeria and Russia by mining Canadian oil sands and developing a Qatari gas- to-liquids venture. The “unconventional” projects are designed to replace aging fields and reverse the decline in the company’s output of the past five years. Shell is examining new projects that have the potential to add about 6 billion of barrels of oil and gas resources, the company said in October.

Production Goal

The company aims for long-term production growth of 2 to 3 percent a year from 2010 and plans to add as much as 250,000 barrels of oil a day in new production by the end of this year. That’s part of the 1 million barrels a day of additional output it has so far committed in projects.

In October, it postponed an investment decision on the second-phase expansion of its Athabasca oil-sands project in Canada because of rising costs. Shell planned to spend as much as $36 billion in capital spending and acquisitions last year.

BP’s Global Indicator Margin, a broad measure of refining profitability, fell to $5.20 a barrel in the fourth quarter from $8.03 a barrel in the third quarter, according to BP’s Web site.

Of the 38 analysts tracked by Bloomberg who cover Shell, 26 recommend buying the stock and 8 say to hold it. Another four recommend selling the stock.

Shell, the first major oil company to report fourth-quarter earnings, will give a strategy update March 17. Exxon Mobil Corp, the world’s largest oil company, and Chevron Corp, are due to report earnings tomorrow. BP Plc, Europe’s second largest oil company, will report Feb. 3.

To contact the reporter on this story: Fred Pals in Amsterdam at[email protected]

Last Updated: January 29, 2009 03:14 EST

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