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Royal Dutch Shell Feeling the Pain

Screen Shot 2014-03-10 at 23.56.16Extracts from a Motley Fool article by Rupert Hargreaves under the headline: “Did ExxonMobil Make the Right Decision About Europe?”

Feeling the pain

There’s no company that is feeling the pain more than Royal Dutch Shell (NYSE: RDS-B ) . Shell’s CEO, Ben van Beurden previously described the company’s refining sector results as “unacceptable.” It’s easy to see why.

During the first quarter of this year, Shell revealed a $2.9 billion charge to earnings, mainly due to writedowns on its refineries in Asia and Europe reflecting a poor outlook for refining margins.

What’s more, during the quarter the company’s downstream division reported a year-on-year slump in earnings of 15%, mainly as a result of tighter refining margins.

The problem is cost. US refineries have been given huge advantage by the shale boom. US domestic crude is priced at a discount to Brent, so according to data from ExxonMobil, crude accounts for around 60% of costs for refineries within Europe. Within the US, this figure is as low as 30%.

FULL ARTICLE

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