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London - Royal Dutch Shell said second-quarter profit plunged, missing analyst estimates by more than $1bn, as a mix of lower energy prices, weaker refining margins and production halts weighed on Europe’s largest oil company.
Profit adjusted for one-time items and inventory changes fell 72% from a year earlier to $1.05bn, The Hague-based Shell said on Thursday. Analysts had expected a $2.16bn result.
CEO Ben Van Beurden, who earlier this year completed Shell’s record acquisition of BG Group, is cutting costs and spending following a two-year slump in crude. Brent’s 25 percent rebound last quarter provided some prospect of relief, yet the rally is now fading while the safety net provided by refining has given way.
Production shutdowns in Nigeria and Canada increased the pain for Shell.
"Lower oil prices continue to be a significant challenge across the business, particularly in the upstream," Van Beurden said in a statement.
Second-quarter production was 3.51m barrels of oil equivalent a day, compared with analyst estimates for 3.63m.
Big surprise
"This is a very big surprise from Shell," said Brendan Warn, a managing director at BMO Capital Markets in London. "Things are not looking up in the third quarter either, with weakness in the industry’s refining environment and Shell’s oil production still under pressure."
Shell’s B shares, the most widely traded, sank as much as 3.5% to 2 031 pence in London, and were down 3.4% at 08:04 local time.
The company’s loss from oil and gas production widened to $1.3bn in the quarter from $469m a year earlier. Profit from downstream, which includes refining, tumbled 39% to $1.8bn while earnings from integrated gas, which includes liquefied natural gas, fell 38%.
Shell plans to spend $25bn to $30bn a year through 2020, though Van Beurden has said the company has the option to cut expenditure further and defer more projects if oil prices stay below $50 a barrel. Brent traded below $44 on Thursday.
The benchmark crude averaged $47.03 in the second quarter, compared with $63.50 a year earlier and $35.21 in the first quarter of this year.
BG deal
Shell completed the acquisition of BG for $54bn on February 15. The purchase gave it a 20% share of the global liquefied natural gas market with production facilities from Australia to the US, as well as high-margin oil fields in Brazil.
Competitor BP Plc reported a 45% decline in profit on July 26, while France’s Total SA posted a 30% drop in earnings Thursday. Exxon Mobil, the world’s biggest oil company by market value, and Chevron Corporation will announce their results on Friday.
The biggest oil producers also run refineries, which have benefited from low crude prices over the past two years, helping to buoy earnings as income from exploration and production dwindled.
Global refining margins averaged $13.80 a barrel in the quarter through June, according to BP, yet they’re now $10.70 as demand growth slows and inventories build.
At the same time, crude’s rebound has sputtered. Production shuttered by wildfires in Canada and by militant attacks in Nigeria is returning, and shale drillers in the US are bringing back some rigs.
While there’s consensus among analysts that the worst of the oil glut is over, the International Energy Agency cautioned this month that "the road ahead is far from smooth."
