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Shell profits drop 31pc to $4.2bn on Nigeria and refining woes

 Shell blames weak industry refining margins and security problems in Nigeria for sharp drop in third-quarter profits.

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By 7:40AM GMT 31 Oct 2013

Royal Dutch Shell blamed weak refining margins across the industry and the deteriorated security situation in Nigeria for 31pc drop in third-quarter profits, to $4.25bn.

The results were significantly worse than analysts had forecast, with profits excluding the impact of one-off items Shell’s profits down 32pc, to $4.46bn, against forecasts of between $4.9bn and $5.1bn.

Shell shares dropped 4pc in early trading.

Shell said it took a $300m hit from the impact of the widespread oil theft and ensuing disruption it is battling in the Niger Delta, as well as the blockade of the Nigeria LNG plant. Production from Nigeria was 65,000 barrels of oil and gas a day lower than in the same period of 2012.

Peter Voser, chief executive – unveiling his last set of results before retiring at the end of the year – said: “We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near term outlook.”

With investors nervous over the balance between high spending and shareholder returns by oil majors, Mr Voser defended Shell’s stance.

“The company is rich with new investment opportunities – in the next few quarters Shell’s capital discipline means we will need to make hard choices between the best new investment opportunities from this industry-leading portfolio,” he said.

“Shell’s sustained investment in new growth projects will drive our financial performance. Dividends are Shell’s main route for returning cash to shareholders. We have distributed more than $11bn of dividends in the last 12 months.

“So far this year, we have repurchased more than $4bn of shares, and we are on track for up to $5bn of share buybacks in 2013. This underlines our commitment to shareholder returns.”

Shell’s third quarter dividend is 45 cents per share, up 5pc from the same quarter of 2012 but unchanged from the second quarter of this year.

Shell said the exceptional items included impairments of $234m “predominantly related to various offshore properties in North America”. A spokesman said the impairment was a result of an annual accounting audit and did not relate to any single major project, such as Shell’s ill-fated drilling campaign off Alaska.

Shell’s earnings are given on a ‘current cost of supply’ basis, which strips out changes to the value of its oil inventory.

Andrew Whittock, oil analyst at Liberum Capital, said: “Overall, the third quarter results are disappointing and we expect to revise our forecasts down by c.10pc. However, the big issue remains the balance between cash generation, capex and the balance left over for distributions.

“Our valuation is driven by a dividend discount model – it is starting to appear that disposals need to be accompanied by reductions in capex if a dividend progression (and our £22 price target) is to be maintained.”

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