Royal Dutch Shell PLC (RDSA) Thursday reported a 31% decline in third-quarter profit, largely because of weak refining margins and increased exploration-and-production expenses.
Shell posted profits on a "current cost of supplies" basis--a figure that factors out the impact of inventories, making it equivalent to the net profit reported by U.S. oil companies--of $4.25 billion, down from $6.15 billion in the same period last year. Shell reported revenue of $116.51 billion, up from $112.12 billion a year earlier.
"We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near-term outlook," said Chief Executive Peter Voser, who is set to retire at the end of the year.
The Anglo-Dutch oil giant said it expected capital spending for the full year to total about $45 billion, up from an estimate of $40 billion last quarter, partly because of investments in new projects such as exploration in offshore Brazil.
Shell's results are the latest example of low refining profits and rising costs eating into the profits of big oil companies. Excluding items such as a capital gain from an asset sale, Italian oil giant Eni SpA (E) Wednesday posted a 29% decline in quarterly profits. BP PLC (BP) on Tuesday reported a 34% decline in quarterly net.
Shell showed declines across its businesses. Its exploration-and-production division reported a 29% drop in earnings excluding one-off items, to $3.47 billion, because of security problems in Nigeria including a "blockade" of a natural gas facility there. The division also had higher operating and maintenance expenses at the same time that overall production dropped. Shell said it had better production volume from "liquid-rich shale" in the Americas last quarter, after it wrote down the value of North American shale assets by more than $2 billion in its prior quarterly results.
Shell's production rate was 2.931 million barrels of oil and oil equivalent a day for the quarter, down 2% from last year. The company said it restarted production at a big Iraq oil field and added new offshore acreage in China and the Gulf of Mexico.
Shell's "downstream" division, which includes refining and chemicals, saw earnings drop 43% from a year ago, to $906 million as refining margins fell, due in part to "global overcapacity and weak demand."
Shell's results were "weak," said Jason Kenney, an oil-company analyst with Banco Santander. He said the company's profit came in below his expectations.
Excluding one-time charges, Shell's current-cost-of-supplies profit was $4.46 billion, down 32% from $6.58 billion last year.
Earnings per American depository share were $1.36, down from $1.96 cents on a current-cost-of-supplies basis, and $1.42, down from $2.10, excluding one-time items. The company raised its quarterly dividend by 4 cents per ADS, to 90 cents.