Shell Reports First Quarterly Loss in 10 Years on Oil Plunge

By Fred Pals

Jan. 29 (Bloomberg) -- Royal Dutch Shell Plc, Europe’s largest oil company, posted its first quarterly loss in 10 years following a record plunge in oil prices, and warned that industry conditions “remain challenging.”

The fourth-quarter net loss was $2.81 billion, or $0.44 a share, compared with a profit of $8.47 billion, or $1.36, a year earlier, The Hague-based Shell said today in a statement. Revenue fell 24 percent to $81.07 billion.

Chief Executive Officer Jeroen van der Veer boosted the dividend by 11 percent, and said Shell would continue with “competitive and progressive” payouts even as the global recession hurts demand. The company will maintain project investment in a range between $31 billion and $32 billion this year after cutting spending plans last year.

“We were slightly disappointed by the lower than expected exploration and production profitability,” Alexandre Weinberg, a Brussels-based analyst at Petercam SA, said. “This might lead us to foresee a lower free cash flow if hydrocarbon prices were to remain at their current levels.” Weinberg cut his recommendation on the stock to “add” from “buy”.

Excluding gains or losses from inventories and one-time items, earnings were $3.89 billion. The median estimate of 12 analysts surveyed by Bloomberg was for profit of $4.13 billion on this basis. Shell also had a currency loss of $351 million.

Shell’s Class A shares rose 0.3 percent to 1,782 pence as of 1:09 p.m. in London. The stock lost 15 percent last year.

CCS Basis

Fourth-quarter profit on a current cost of supplies basis fell to $4.8 billion from $6.7 billion, while full-year profit on the same basis rose to $31.4 billion from $27.6 billion. Net profit fell 16 percent to $26.3 billion in 2008.

Shell expects to raise its dividend for the first quarter by 5 percent to $0.42.

Increased dividend payments “reinforce our confidence in Shell’s ability to weather the current period of high capex and weak economic conditions,” Gordon Gray, a London-based analyst at Collins Stewart, said. He has a “buy” rating on the stock.

A record 56 percent slump in New York-traded crude futures during the quarter eroded the value of inventories and hit earnings from exploration and production.

Oil prices fell to a four-year low of $32.40 a barrel on the New York Mercantile Exchange on Dec. 19, after peaking at $147.27 on July 11. Crude oil for March delivery fell 2 percent to $41.30 today.

Earnings at Shell’s refining division fell to $582 million on a current cost of supplies basis, from $876 million a year earlier and from $2.3 billion in the third quarter. Profit from exploration & production dropped 24 percent to $3.71 billion.

Refining Prospects

Shell expects its refining business to have a “difficult” first quarter, Chief Financial Officer Peter Voser said on a conference call. Some of the company’s refineries are being run at reduced rates, he added, declining to identify which ones.

Swiss-born Voser will take from van der Veer as CEO in July. It’s the first time in Shell’s 102-year history that the top job has gone to a national from outside the U.K. or the Netherlands.

Shell’s so-called organic spending will be higher than the $30 billion invested in 2008. The oil major bought assets worth $9 billion last year and disposed of $7 billion, putting net capital investment at $32 billion, “lower than previously planned, as divestment proceeds for the year exceeded prior expectations.”

Capital Spending

The company had indicated in October it planned to spend as much as $36 billion on projects and acquisitions last year.

Total oil and gas production may drop for a seventh consecutive year in 2009 before rebounding in 2010, Shell said.

Oil and gas production will experience a “slight decline” in the short term, van der Veer said in a Bloomberg television interview, adding that “very soon our big projects will kick in.”

Production has been hampered by militant attacks in Nigeria, asset sales and a reduction in crude received under production-sharing contracts.

Shell’s annual average output slipped 2 percent to about 3.25 million barrels of oil equivalent a day last year, from 3.32 million barrels in 2007. Fourth-quarter production was little changed at 3.42 million barrels equivalent a day compared with the year-earlier period.

Shell plans to counter lost production in Nigeria and Russia by mining Canadian oil sands and developing a Qatari gas- to-liquids venture. The cost of producing Canadian oil sales, including fuel costs, is about $38 a barrel, van der Veer said.

Project Delays

The company postponed investment decisions on upgrading its deepwater Mars platform in the Gulf of Mexico and developing the Pierce field in the U.K.’s North Sea as it waits for industry costs to decline. In October, it delayed a decision on the second-phase expansion of its Athabasca oil-sands project in Canada.

Shell plans to add as much as 250,000 barrels of oil a day in new production by the end of this year and will add a “significant amount” of new output from 2010 and 2011, Voser said. That’s part of the 1 million barrels a day of additional output it has so far committed in projects.

BP’s Global Indicator Margin, a broad measure of refining profitability, fell to $5.20 a barrel in the fourth quarter from $8.03 a barrel in the third quarter, according to BP Plc’s Web site.

Of the 39 analysts tracked by Bloomberg who cover Shell, 25 recommend buying the stock and 8 say to hold it. Another six advise investors to sell the shares.

Shell will give a strategy update March 17. Exxon Mobil Corp, the world’s largest oil company, and Chevron Corp, are due to report earnings tomorrow. BP, Europe’s second-largest oil company, will report Feb. 3.

ConocoPhillips, the third-biggest U.S. oil producer, yesterday posted a $31.8 billion fourth-quarter loss, its biggest on record, as the collapse in energy prices dragged down the value of acquired assets.

To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net