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Shell Shares Drop As 3Q Profit Fails To Impress


By James Herron

29 OCTOBER, 2009

LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) shares fell 3.4% Thursday after the company posted a 67.6% fall in adjusted third-quarter profit on lower oil and gas prices, disappointing analysts by failing to beat modest expectations.

Following BP PLC’s (BP) slam-dunk earnings, which were almost 50% above consensus, Shell’s figures are disappointing, said NCB Stockbrokers analyst Peter Hutton. “This will feel like a bit of a non-event at 5% above a fairly meager consensus figure,” he said.

Despite signs of improvement in Shell’s core markets, the company indicated it doesn’t expect a rapid return to the profitability it enjoyed before the economic downturn.

“Our third-quarter results were affected by the weak global economy. Upstream and downstream profitability has been sharply reduced compared to year-ago levels,” said Shell Chief Executive Peter Voser. “We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain, and we are not expecting a quick recovery.”

Voser said the company’s restructuring, which he launched this summer, is on track. “We continue to focus on improving our competitive cost position, simplifying Shell,” he said.

The restructuring, which will be complete by the end of this year, has already reduced operating costs by $1 billion in the first nine months of the year and will cut employee numbers by 5,000, or around 10% of the workforce in the restructured divisions, Voser said.

Shell said the clean current cost of supplies, a keenly-watched profit figure because it strips out gains or losses from inventories and other non-operating items, was $2.62 billion in the three months ended Sept. 30, compared with $8.09 billion in the third quarter of 2008.

This was above analysts’ expectations for $2.56 billion in a Dow Jones Newswires poll of six financial institutions.

“Shell reported a bad upstream result, which was offset by a good downstream performance,” said ING analyst Jason Kenney.

The upstream division was particularly disappointing, with clean current cost of supplies of $1.67 billion compared with ING’s forecast of $1.98 billion, Kenney said.

Shell said a weak environment for natural gas affected its third-quarter upstream 2009 earnings, primarily because gains in crude prices have yet to materialize in natural gas because of the time lag effect in oil-indexed gas contracts.

“This was offset by a big beat downstream,” in earnings from its oil products unit of $587 million versus ING’s forecast of $358 million, Kenney said.

Refined product and chemical markets remained weak in the third quarter, but reduced costs partially offset low margins, Shell said.

Total oil and gas production was 2.93 million barrels of oil equivalent per day, almost unchanged on the previous year.

Liquefied natural gas sales volumes were up 13% on the same period in 2008 following the ramp-up of Russia’s Sakhalin-2 and Australia’s North West Shelf projects, Shell said.

Net profit for the quarter totaled $3.25 billion, down 61.6% from $8.45 billion in the same period a year ago.

Group revenue was $75.01 billion, compared with $131.57 billion in the third quarter of 2008.

Diluted earnings per share were 53 cents compared with 137 cents in the same period of the previous year.

At 0808 GMT, Shell B shares were down 3.4%, or 63 pence, at 1,807 pence in a slightly weaker market.

Company Web site:

-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected]

(Alex MacDonald contributed to this article.)

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