Shell profits take a hit on weak refining margins, high production costs and Nigeria troubles

Royal Dutch Shell's third quarter profits fell short of analysts' projections today as weak refining profit margins, with higher production costs and output stoppages in Nigeria hurt performance.

Third quarter earnings excluding identified items and on a current cost of supply basis stood at $4.5 billion as against a projected range of between $4.9 and $5.1 billion, down from $6.6 billion a year ago.

The company's shares were down 4.6 per cent to £24.3 in the morning even as expectations of better than forecast BP results had been high yesterday.

According to chief executive Peter Voser, who is due to step down from the western world's number three oil company at the end of the year, actions taken on costs and shareholder payouts during the year so far "underline our commitment to shareholder returns", as he echoed an industry theme for the quarter as the sector underperformed the broader market and investors feared rising costs would erode capacity to pay dividends.

The world's largest oil company Exxon Mobil is due to report its results later today. The profit decline came on significantly weaker industry refining conditions, that had been widely flagged by the company and others in the industry.

However, rising costs in both production and finding operations in the main oil and gas division were also major contributors along with  production impacts from maintenance and asset replacement activities.

Meanwhile, Shell shares were down 4 per cent in early trading.

According to Shell, it took a $300-million hit due to the impact of the widespread oil theft and ensuing disruption it continued to battle in the Niger Delta. A blockade of the Nigeria LNG plant was also responsible.

Production from Nigeria declined by 65,000 barrels of oil and gas a day as against the same period of 2012.

Shell announced third quarter dividend at 45 cents per share, up 5 per cent from the same quarter of 2012 but unchanged from the second quarter of this year.

According to Shell the exceptional items included impairments of $234 million largely related to various offshore properties in North America.

According to a spokesman, the impairment was a result of an annual accounting audit and was not related to any single major project, such as Shell's ill-fated drilling campaign off Alaska.

Shell's earnings were given on a 'current cost of supply' basis, which stripped out changes to the value of its oil inventory.

The Telegraph quoted Andrew Whittock, oil analyst at Liberum Capital, as saying , overall, the third quarter results were disappointing and Liberum  expected to revise its forecasts down by 10 per cent.