Shell is making a habit of disappointing investors. The oil and gas major says it will have a big profit miss in the fourth quarter. It has found plenty of reasons, - starting with refining woes and high exploration costs. The warning comes after a string of weak results in 2013. New Chief Executive Ben van Beurden, who took over from Peter Voser this month, has his work cut out.
New CEOs sometimes like to lower the performance bar to make it easier to pass in subsequent years. But the company's poor results don't look like they're simply due to that kind of "kitchen sinking." The release, two weeks ahead of its 2013 results, is short on detail but the charges look beyond van Beurden's control.
Downstream earnings were hit by weak refining margins - a global industry trend. Liquid natural gas volumes were lower than expected and high levels of maintenance in the North Sea and Gulf of Mexico, as well as ongoing Nigerian woes, also meant fewer barrels. Shell, like Tullow, has had to make writeoffs in French Guyana, for example, after a series of dry wells.
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The good news is that lower maintenance should mean an easier start to 2014. And, van Beurden has some levers to pull to boost profitability. His first priority should be to stop the cash hemorrhage in US upstream business, where Shell has already started a review. A quarter of its capital employed is tied up there, according to Barclays. The new boss will also have to shrink refining capacity and step up divestments. With stagnant oil prices, none of this looks easy. But the path is clear.
