Shell earnings fall in second quarter

Royal Dutch Shell, the oil and gas giant, is continuing to struggle in Nigeria and North America, the company revealed today in announcing earnings that fell below analysts' forecasts. Shell's second-quarter income, adjusted for one-time items, was $4.6 billion (€3.48 billion), compared with $5.7 billion (€4.31 billion) in the same period a year earlier. Analysts had expected the company to earn $5.8 billion (€4.38 billion).

"This is one of the worst set of Shell results that we can remember," wrote analysts from Bernstein in a research note.

Shell's shares were down 5 per cent in London. Shell's chief executive, Peter Voser, told reporters that the situation in Nigeria, where Shell normally obtains close to 9 per cent of its world production, was worsening. The country has long been a mainstay for Shell, but production there has been dogged by political and environmental issues.

Problems in Nigeria during the quarter had lowered production by about 100,000 barrels per day, or around 40 percent, and had cost the company $250 million, Shell said.

Nigerian output was hit not only by the usual “bunkering,” or sabotage aimed at stealing oil from pipelines, but also by an extraordinary legal dispute between the Nigerian maritime authorities and a liquefied natural gas facility in which Shell is a partner. In the most serious episode, the maritime authorities kept LNG tankers from landing at the plant between late June and mid-July until they received a large payment from the operators.

Mr Voser said oil theft and disruptions to gas supply were causing widespread environmental damage and could cost the Nigerian government up to $12 billion per year. “We will play our part, but these are problems Shell cannot solve alone, “ Mr Voser said.

Mr Voser said Shell was reviewing its Nigeria operations and would sell up to 100,000 barrels per day of production onshore, where most of the problems are, preferably to Nigerian players in order “to have local stakeholders involved in the production of onshore assets.”

Shell also said it was reviewing its exploration and production portfolio in North America, where it has been losing money. The exercise, the company said, will lead to divestments and a sharper focus on fewer projects.

Over the past five years, the company has invested heavily in shale gas and oil properties, building up a $28 billion portfolio. Based on drilling and exploration results in recent months, Shell is writing off about $2 billion after taxes in the shale oil areas after taking previous write-downs on shale gas acreage. The write-downs bring the book value of the portfolio down to about $24 billion.

Mr Voser said the write-downs represented a relatively low proportion of the North American shale portfolio, but that they reflected continued problems in the Americas, an important area for Shell. Bernstein estimated that Shell lost $4.54 for every barrel it produced in the Americas, the location of almost a quarter of its output.

Shell's overall production was down 1 per cent to just over three million barrels per day. Its output for the quarter was slightly less than that of its rival BP if the company's share of almost 20 per cent of output from Rosneft, the Russian state-controlled oil company, is included. – (New York Times)