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Shell Profit Drops 48% as Oil and Gas Production Declines

Shell will need to slash investments and boost cash flow to meet its $130 billion net capital-expenditure target for 2012-2015.

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Jan 30, 2014 7:14 AM GMT

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, said profit plunged 48 percent on exploration expenses and lower production.

Profit excluding one-time items and inventory changes was $2.9 billion in the fourth quarter, down from $5.6 billion a year earlier. That matches the drop Shell forecast on Jan. 17 because of losses in the Americas, lower refining margins and production disruptions in Nigeria and elsewhere.

“Its Americas growth strategy –- the home for 50 percent of past investment –- woefully underdelivering under the weight of dead capital,” Lucas Herrmann, a London-based analyst at Deutsche Bank AG, said before the earnings report. “Corporate change could release huge value.”

Chief Executive Officer Ben van Beurden, who took over from Peter Voser this year, has accelerated asset sales with two deals announced this month. He must cut record spending to reduce costs and win investor confidence after The Hague-based Shell issued its first profit warning in a decade this month.

Shell earnings are “significantly below recent profitability and matching the lowest level since fourth-quarter 2009,” Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London, also said before the earnings report. Van Beurden needs “to explain how results will improve from here, following three quarters of disappointing earnings.”

Sell Assets

The Anglo-Dutch company, which plans to dispose of about $15 billion in assets, has agreed to sell holdings valued at about $2.1 billion in Australia and Brazil. It’s seeking buyers for interests in oil and gas fields, in pipeline, fuel-refining and marketing assets from the U.S. to Nigeria. It may also exit its investment in Woodside Petroleum Ltd. worth about $6.3 billion.

Shell will need to slash investments and boost cash flow to meet its $130 billion net capital-expenditure target for 2012-2015. It has two years left to generate 60 percent of the $200 billion forecast cash flow for the period, according to Neill Morton, a London-based analyst at Investec Securities Ltd.

Of the 29 analysts that cover the company, 14 recommend buying the shares, 14 have hold ratings and three advise selling the stock.

The company will hold a webcast of fourth-quarter earnings at 2:30 p.m. London time.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected]

To contact the editor responsible for this story: Will Kennedy at [email protected]

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