Worse-than-expected third quarter results are putting Royal Dutch Shell (RDSB) under pressure - down 4.7% to £21.70. After its peer BP (BP.) beat expectations earlier this week (29 Oct) – a set of numbers we examined in detail here - Shell singularly failed to match up.

Web chart - Shell - Oct 2013

The Anglo-Dutch oil major’s third-quarter earnings on a current cost of supply basis, excluding exceptional items, are $4.5 billion, down from $6.6 billion year earlier, and lower than the forecast range of between $4.9-$5.1 billion. Excluding working capital movements, cashflow from operating activities for the third quarter of 2013 stands at $9.9 billion, compared with $11.7 billion in the third quarter of 2012.


The main culprits behind this weak performance appear to have been weak refining margins, rising production costs and lower production volumes. Pipeline outages in Nigeria were a big factor in this latter issue – with the company blaming theft and sabotage. Broker Oriel Securities sees little scope for an improvement in the fourth quarter citing 'the same macro, Nigeria, maintenance and exploration expense related reasons', adding this gives 'little reassurance to investors near term.'


The group's chief executive officer Peter Voser, who is due to depart at the end of the year, is hardly more positive: 'We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near term outlook.'


Earlier this month we discussed how Shell's dividend, which is unchanged on the previous quarter at 45 cents but up 2 cents year-on-year, could come under pressure as it is forced to invest to increase production and boost reserves. Describing the results as 'very disappointing' Deutsche Bank, which has a 'hold' recommendation on the stock and a £24 price target, notes that capital expenditure will be above market expectations for $40 billion in 2013 at around $45 billion.

Issue Date: 31 Oct 2013