Shell warns of ‘significant’ drop in Q4 profits, takes market by surprise

London-listed energy group Royal Dutch Shell today issued a ''significant'' profits warning, detailing across-the-board problems including exploration costs, pressures across the oil industry and disruption of its Nigerian output.

The group said in a surprise trading update that fourth-quarter profits were set to be "significantly lower than recent levels of profitability", underlining the challenges facing the oil major's new boss Ben van Beurden, who took over two weeks ago.

The warning comes nearly 10 years to the day after Shell, the western world's third-biggest oil company, revealed the so-called reserves accounting scandal, when the group dramatically downgraded its reserves estimates.

It also follows a similar warning from Chevron Corp, the second-largest US oil company, last week and reflects that the industry is grappling with dwindling reserves, lower oil prices and the need to control costs.

Our 2013 performance was not what I expect," van Beurden said, announcing a cut in forecasts of fourth-quarter earnings excluding identified items on a current cost of supplies (CCS) to $2.9 billion, from market expectations of about $4 billion.

Profit on a current cost of supplies (CCS) basis or current-cost accounting - which strips out changes to the value of oil and gas inventories - was set to plunge 70 per cent to about $2.2 billion (€1.6 billion) in the three months to December. That would mark a fall from $7.3 billion in the same period of 2012.

Over the whole of 2013, CCS profit was expected to dive 38 per cent to $16.8 billion.

The grim figures caused Shell's share price to fall heavily in early morning deals in London, before later clawing back some ground.

"Shell's fourth quarter 2013 earnings ... were impacted by weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes," the company said.

Excluding one-off items, CCS profit sank to $2.9 billion in the fourth quarter, down from $5.6 billion in the same part of 2012.

Van Beurden said, "Our focus will be on improving Shell's financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery."

Net profit was set to plunge by 73 per cent to $1.8 billion in the fourth quarter of 2013, compared with the outcome a year earlier, Shell added. Annual net profit was expected to slide 38.5 per cent to $16.4 billion in 2013, from $26.7 billion in 2012.

Friday's dire earnings update was published ahead of Shell's official annual results statement, which is scheduled for publication on 30 January.