Shell records $300m drop in profit on refining cost, disruptions in Niger Delta

ROYAL Dutch Shell has recorded a decrease in its third quarter earnings from $6.2 billion it earned last year to $4.2 billion in 2013.

Shell blamed weak refining margins across the industry and the deteriorated security situation in Nigeria for 31per cent drop in third-quarter profits to $4.25 billion.

Shell said it took a $300 million hit from the impact of the widespread oil theft and ensuing disruption in the Niger Delta, as well as the blockade of the Nigeria Liquefied Natural Gas (LNG) plant. Production from Nigeria was 65,000 barrels of oil and gas a day lower than in the same period of 2012.

The company also blamed the drop in its production volume, which reduced by 65 thousand bpd on the deteriorated operating environment in Nigeria.

According to the company in its third quarter result, released yesterday, the third quarter 2012 CCS earnings excluding identified items were impacted by significantly weaker industry refining conditions, increased upstream operating expenses and exploration expenses, as well as production volume impacts from maintenance and asset replacement activities.

It added that earnings also reflected the impact of the challenging operating environment in Nigeria and lower dividends from an LNG venture.

The company disclosed, “Royal Dutch Shell Plc Equity LNG sales volumes of 4.88 million tonnes decreased by two per cent compared with the same quarter a year ago, reflecting lower volumes from Nigeria LNG, partly offset by better operating performance at various other LNG plants.

“Shell-share Nigeria LNG volumes were some 0.28 million tonnes lower in the third quarter 2013 due to reduced feedgas supply, as a result of the deteriorated security situation onshore, and due to a blockade of Nigeria LNG operations by the Nigerian Maritime Administration and Safety Agency in July. Excluding the impact of the challenging operating environment in Nigeria, equity LNG sales volumes were four times higher than in the third quarter 2012.”

The company’s third quarter 2013 production was 2,931 thousand bpd compared with 2,982 thousand bpd a year ago in 2012.

Its liquids production decreased by seven per cent and natural gas production increased by five per cent compared with the third quarter 2012.

The company insisted that the deteriorated operating environment in Nigeria impacted production volumes by some 65 thousand bpd compared with the third quarter 2012

The company added, “cash flow from operating activities for the third quarter 2013 was $10.4 billion, compared with $9.5 billion in the same quarter last year. Excluding working capital movements, cash flow from operating activities for the third quarter 2013 was $9.9 billion, compared with $11.7 billion in the third quarter 2012.

“Capital investment for the third quarter 2013 was $9.7 billion. Net capital investment for the quarter was $9.4 billion.

Shell’s Chief Executive Officer, Peter Voser stated, “our cash flow pays for Shell’s dividends and investment in new projects to ensure affordable and reliable energy supplies for our customers, and to add value for our shareholders.

“We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near term outlook.

“Shell has a strong project flow in place for 2014 and beyond. We have started up a series of new oil and gas fields in the last few months, in deep water, integrated gas, and in our longer-term plays such as Iraq. These new fields are part of a project flow that will drive Shell’s cash flow in 2014 and beyond, coming alongside a reduction in net spending next year as we work through a series of acquisitions, and increase the pace of asset sales.

“The company is rich with new investment opportunities – in the next few quarters Shell’s capital discipline means we will need to make hard choices between the best new investment opportunities from this industry-leading portfolio.”

He noted that the company’s sustained investment in new growth projects will drive its financial performance.

“Dividends are Shell’s main route for returning cash to shareholders. We have distributed more than $11 billion of dividends in the last 12 months. So far this year, we have repurchased more than $4 billion of shares, and we are on track for up to $5 billion of share buybacks in 2013. This underlines our commitment to shareholder returns.”