Royal Dutch Shell Plc said it planned even deeper cuts
to its oil refining and retail operations after downstream weakness caused a 75
percent fall in fourth-quarter profits to $1.18 billion.
Chief Executive future Peter Voser pledged $1 billion
in cost cuts and 1,000 job reductions in 2010 -- mainly to come from the
downstream unit -- and upped his target for refinery divestments.
Europe's second largest
oil company by market value added it would continue to shift the focus of its
downstream business to Asia, where rising fuel demand could ensure better
profits.
Shell also affirmed its
targets to grow oil and gas production, the main driver for oil companies'
earnings, by 2-3 percent over 2009-2012, but analysts said investors' near term
focus would remain on the downstream.
"The strong growth
story remains overshadowed by Shell's refining exposure," Alexandre
Weinberg, oil analyst at Petercam said.
Shell's London-listed
"A" shares traded down 1.9 percent at 1,741.5 pence at 1207 GMT,
lagging a 0.6 percent drop in the DJ Stoxx European oil and gas sector index
.SXEP.
Excess refining
capacity, due to lower fuel demand caused by the global recession, and new
refinery startups in the
Middle East
and
Asia
, has hit crude processing margins and profits at all the oil majors.
The largest western oil
company by market value, Exxon Mobil
, had a 23 percent drop in fourth-quarter net income while the
second-largest U.S. oil company, Chevron
had a 37 percent drop.
However, Shell's especially
large refinery portfolio and the poor quality of some of its assets has seen it
hit worse than its rivals.
Finnish refiner Neste
Oil
and
Europe
's largest independent refiner, Swiss-based Petroplus
on Thursday highlighted the tough crude processing environment in
Europe
, reporting losses.
TURNAROUND
Voser said a
turnaround he launched last year was yielding dividends with $2 billion cost
savings in 2009, exploration success and the startup of new projects.
After seven years of
falling output, Voser predicts stable production of oil and gas in 2010 and a
rise thereafter.
Some analysts believe
Voser's actions will lead to stronger profit growth than its rivals in coming
years.
"The stage should
be set for Shell to begin a period of stronger relative performance based on
delivery of restructuring benefits," said Mark Bloomfield, oil analyst at
Citigroup said.
However, Gordon Gray
at Collins Stewart said he had reduced his 2010 earnings per share forecast by
6 percent to reflect "persistent downstream weakness."
Excluding a charge of
$1.6 billion related to one-off items, Shell's "clean" net profit was
$2.77 billion, short of an average forecast of $2.87 billion from a Reuters
poll of ten analysts.
The collapse in
refining margins and weaker retail profits caused a $1.76 billion loss in the
downstream unit. Sharply lower gas prices meant upstream profits also fell,
despite a recovery in oil prices.
Gas accounts for around
47 percent of Shell's production, compared with around 36 percent at larger
rival BP Plc
.
London-based rival BP
managed to report a 33 percent rise in profits in the quarter compared to the
same period in 2008 because of its relatively low reliance on natural gas and a
smaller and better quality refining portfolio.
Shell has steadily increased
its planned scale back in refining in the past year. In July it said it may
close or sell 8 percent of its 3.87 million barrels per day refining capacity.
In September, Shell
upped the figure to 15 percent.
Voser said on Thursday
he was still reviewing the future of 15 percent of the portfolio, but since he
said this excluded the
Montreal
refinery which Shell said last month it planned to convert into a fuel
terminal, the latest target is equivalent to an 18 percent reduction on the
original basis.
Shell said oil and gas
production fell 2.4 percent in the quarter compared to the same period last
year, to 3.3 million barrels of oil equivalent per day.
(from
Reuters)