Shell Earnings: As Bad as Expected, But Changes Are Coming

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Earlier this month, Europe’s largest oil company — Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB) — gave its first profit warning since 2004. That warning was a shock to Banco Santander analyst Jason Kenney. Shell had “to pre-announce to get the market to reality, but even so it’s a very weak set of results,” he wrote. Profit warnings are rare for oil producers, companies that investors value for their slow but steady growth. But weaker-than-expected results appear to be part of an industrywide trend, and the announcement was an inauspicious start to the earnings season for energy companies.

Despite relatively high and stable oil prices, Shell had numerous issues in 2013. The price of brent crude prices, the benchmark for more than half the world’s oil, dropped 0.3 percent in 2013, the first time since 2008 that global oil prices did not increase.

On Thursday, the oil producer reported that fourth-quarter profit, excluding onetime items and inventory changes, plummeted 48 percent to $2.9 billion from the $5.6 billion reported in the year-ago quarter. That massive drop matched the figure Shell gave on January 17. The fourth quarter’s weak performance has its origins in numerous aspects of the oil producer’s business, the company said in its warning. Oil and gas production dropped by approximately 5 percent to 3.25 million barrels per day.

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