A surprise profit warning from oil major Royal Dutch Shell (RDSB) has investors heading for the exits with the shares down 2.7% at £22.46.


Ahead of scheduled release later this month (30 Jan) the company says it fourth quarter figures will be 'significantly lower than recent levels of profitability' as new chief executive officer Ben van Beurden admits 2013 performance was 'not what I expect from Shell'.


Its fourth quarter underlying earnings are now seen almost halving year-on-year to around $2.9 billion ($1 billion shy of consensus forecasts) leaving full year results 23% lower at $19.5 billion.


Once exploration write-offs are included the figures look even worse with the company facing a net charge of $700 million in the fourth quarter and $2.7 billion for 2013 as a whole.


The blame for this weak performance is put on falling oil and gas prices, high exploration costs and continued problems in its refining business. We outlined our concerns about the company in our FTSE 100 special issue earlier this month – which you can read here.


Edison analyst Neil Shah suggests today's announcement could have implications for the wider sector. 'If Shell catches a cold the rest of the oil sector will always wonder if they will catch flu.' BP (BP.) – set to announce its own fourth quarter numbers on 4 February – is down 0.3% to 488.2p on a read-across from Shell's warning.


RBC Capital Markets analyst Peter Hutton is relatively untroubled and says any weakness could constitute a buying opportunity:


'Shell was down 4-5% on reporting day disappointments in the last two quarters, so this may be the initial benchmark, in our view. But we think the market should become more sanguine as it reflects on these adjustments and recognises that Shell is taking a last opportunity for a bit of a bath.


'We also think that the impact to 2014 estimates is much more limited. We view the news as disappointing, but it should provide an opportunity to buy for those who missed the recent run.'


Investec's Neill Morton is more cautious and retains his 'hold' rating and £23 price target. 'The bulls will talk of "kitchen sinking" and suggest this will be "grist to the mill" for the new CEO to restructure the company. We remain to be convinced.'

Issue Date: 17 Jan 2014