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Royal Dutch Shell Plc (RDSA) missed earnings estimates by the most since 2008 after oil theft in Nigeria and writedowns in North America led to a 20 percent slump in results. The shares fell the most in two years.
Profit excluding one-time items and inventory changes slid to $4.6 billion in the second quarter from $5.7 billion a year earlier, Shell said today in a statement. That fell short of the $6 billion mean estimate of nine analysts surveyed by Bloomberg and was the biggest miss since the fourth quarter of 2008.
Europe’s largest oil company has suffered disruptions in Nigeria, where it lost about 100,000 barrels of oil equivalent a day in the quarter because of crude theft, sabotage and a blockade of gas shipments. The effect on earnings was compounded by charges in North America following unsuccessful exploration.
Shell tumbled as much as 5.5 percent in London trading, the biggest intraday decline since August 2011, and was down 5 percent at 2,125.5 pence as of 1:27 p.m. local time.
The company, based in The Hague, expects to continue losing money from production in the Americas this year. It booked a $2.1 billion charge in the quarter mostly related to liquids-rich shale exploration and announced plans to accelerate asset sales in the U.S., Canada and Nigeria.
Uncertain Strategy
It’s a “disappointing charge,” said Jason Kenney, an analyst at Banco Santander SA in Edinburgh. “A few things are unwinding at Shell, with the risk being that this provides for uncertainty on delivery of long-term strategy.”
Shell plans to exit at least four North American areas of operation in the next 18 months, outgoing Chief Executive Officer Peter Voser said. In Nigeria, Shell will sell production capacity totaling as much as 100,000 barrels a day in the eastern part of the Niger River delta.
“They are pulling back from what you could say was too much exposure,” said Iain Reid, an analyst at Jefferies International Ltd. in London. “They haven’t been as successful as they thought they’d be.”
Total output fell about 1 percent to 3.062 million barrels of oil equivalent a day in the quarter from a year earlier, reflecting not only declines in the U.S. and Nigeria but also maintenance at fields in Brazil, Canada and the U.K., Chief Financial Officer Simon Henry said. Shell scrapped a target to pump 4 million barrels a day by 2017.
Financial Focus
“We have retired our outlook statement on production,” Voser said. “Our recent portfolio moves make the production target less and less relevant. Overall we are targeting financial performance.”
Exploration expenses increased to $1.2 billion in the quarter because of well writeoffs of about $600 million.
“Higher costs, exploration charges, adverse currency exchange-rate effects and challenges in Nigeria have hit our bottom line,” Voser said in the statement.
Shell holds a 25.6 percent stake in Nigeria LNG Ltd., Africa’s biggest liquefied natural gas exporter, which agreed in July under protest to pay $140 million in disputed levies to the nation’s maritime agency to end an export blockade.
“Oil theft and disruptions to gas supplies in Nigeria are causing widespread environmental damage, and could cost the Nigerian government $12 billion in lost revenues per year,” Voser said.
Investment Plan
Shell plans to start five major projects in the next 18 months, adding more than $4 billion to 2015 cashflow. Voser, who will retire at the end of the year, has been overseeing a $100 billion investment program through 2014. He reiterated a 2012 plan to generate cash flow from operations of $175 billion to $200 billion through 2015.
Shell expects to return to profitability from Americas production by the end of next year, Voser said. Its liquid-rich Permian assets acquired from Chesapeake Energy Corp. (CHK) for $1.9 billion last September are “developing very well,” he said.
The company has reduced capital employed in North American shale resources to about $24 billion from $28 billion last year, Henry said. Its shale projects have been producing more than 300,000 barrels of oil equivalent a day, with liquids accounting for about 50,000 barrels. The company last November booked a $298 million charge on shale-gas assets.
Shell is the last of Europe’s biggest oil producers to publish earnings. BP Plc (BP/) and Total SA saw first-quarter profit drop on lower oil prices. Eni SpA (ENI) today reported a 55 percent plunge in adjusted net income, in part because of disruptions in Nigeria. Exxon Mobil Corp. said second-quarter profit fell for the first time in four years.
Shell has chosen refining director Ben van Beurden to succeed Voser at the start of next year.