Shell Declares Disappointing Profits, Blames High Costs & Regional Disruptions

Shell said higher costs and gas supply disruptions in Nigeria were major factors that made for a “clearly disappointing” second quarter.

The Anglo-Dutch supermajor reported net earnings taking a dive in the quarter, dropping 20% to $4.6 billion (on a current cost of supply basis).

Shell chief executive Peter Voser said exploration charges and adverse currency exchange rate effects also hit the company’s bottom line.

“These results were undermined by a number of factors – but they were clearly disappointing for Shell,” he said in a statement on Thursday.

Shell reported an after-tax negative impact of $450 million related to the impact of the weakening Australian dollar on a deferred tax liability and at least a $250 million impact from the deteriorating operating environment in Nigeria.

Voser said the oil theft and disruptions to gas supplies in the country could cost the Nigerian government $12 billion in lost revenues per year.

“We will play our part, but these are problems Shell cannot solve alone,” he said.

Earnings were also impacted by higher operating expenses and depreciation, as well as increased exploration well write-offs.

Upstream earnings for the second quarter were $1.68 billion, compared to $4.7 billion last year, after adjusting for a net charge of $1.84 million. This charge was due to $2.07 million in impairments related to liquids-rich shale properties in North America being partly offset by $69 million in gas contracts, $41 million in divestment gains and other items of $116 million.

Quarterly oil and gas production declined by 1% to 3.06 million barrels of oil equivalent per day. Nigerian output was impacted by some 100,000 bpd during the 2013 second quarter compared to by 65,000 bpd for the same period last year.

However, excluding the issues in Nigeria, as well as divestments and PSC price effects, second quarter production volumes were 2% higher than last year.

Shell also reported that equity liquefied natural gas sales volumes were up by 2% at 4.68 million tonnes.

Cash flow from operating activities was $12.4 billion, compared with $13.3 billion for the 2012 second quarter. Although, Voser said noted five major project start-ups anticipated in the next 18 months that were expected to add $4 billion to Shell’s 2015 cash flow. These projects include Mars B and Cardamom in the deep-water Gulf of Mexico, Gumusut-Kakap in deep-water Malaysia, Kashagan Phase 1 in Kazakhstan and the completion of the acquisition of part of Repsol’s LNG portfolio.

He also said the company planned to complete a number of divestments in the coming years to refresh its portfolio for growth.

“We have completed some $21 billion of divestments in the last three years and some $4 billion in the last 12 months alone, with more to come,” Voser said.

He said Shell had recently launched strategic portfolio reviews in both Nigeria onshore and North America resources plays, which were expected to lead to further focus and divestments in those regions.

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