Royal Dutch Shell PLC said Thursday its fourth-quarter adjusted earnings rose 18%, but the results were below expectations and came as the Anglo-Dutch oil giant warned of economic volatility.
The Anglo-Dutch energy company said the clean current cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, was $4.85 billion in the three months ended Dec. 31, compared with $4.11 billion in the fourth quarter of 2010. This was below analyst expectations of $5.16 billion.
Citing the "sharp downturn" in refining margins and weak natural gas prices, Chief Executive Peter Voser said "the global economy and energy markets are likely to see continued high volatility."
The Shell earnings followed similar results by U.S. oil majors in recent days which have reported billions of dollars in fresh profits, but have cited the same weak fundamentals in refining and U.S. gas.
Shell, Europe's largest oil company and the first to report full-year results, also said it would raise its dividend 2% for the first time in three years from next quarter. However, this was lower than the 4% increase that most analysts had expected.
Shell B shares were recently down 2.l3%.
Earnings at its refining and marketing division fell sharply. The unit posted a loss of $244 million compared to a profit of $411 million in the corresponding period last year. U.S. oil giants Chevron Corp. and Exxon Mobil Corp. have also reported weak refining earnings in recent days.
Total oil and gas production was 3.305 million barrels of oil equivalent per day, a decline of 5% on the year as asset sales and the temporary shutdown of one of its biggest Nigerian fields affected output. Analysts were expecting production to decline 6.4%.
Shell said its ambitious growth strategy remained on track despite the weak quarter. The company laid out a bullish medium-term growth plan along with its results, saying it expects to improve operational cash flow by 30-50% through to 2015 compared to the past three years.
"Upstream earnings held up and were reasonably robust," said Macquarie's Jason Gammel. "The performance of the downstream has to be set against the tough margin environment." The sentiment was echoed by Royal Bank of Canada's Peter Hutton. "The miss was very largely in the downstream, and related to volatility in fourth-quarter conditions."
Mr. Gammel pointed to the firm's growth plans, released in conjunction with its earnings, saying there was an "impressive" target to increase production volumes and cash generation. However, he said that given this strategic focus and the demands it would place on the firm's capital needs, it was unlikely Shell would look to return much more money to shareholders in 2012. "I don't think 2% [increase in the dividend] is much to be excited about."
Net profit for the quarter totaled $6.50 billion, down 4% from $6.79 billion a year ago. Group revenues were $119.13 billion, compared with $105.53 billion in the fourth quarter of 2010. Diluted earnings per share were $1.04 compared with $1.10 the previous year.
For the year, revenues were $484.49 billion, up from $378.15 billion in 2010. Net profit was $30.92 billion, a more than 50% increase on the $20.13 billion recorded in 2010.
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