World No 2 oil company Royal Dutch Shell struggled to deliver production growth in the third quarter and warned it was seeing signs of economic weakness "all around us". Underlying net profit fell 6 percent but came in ahead of investor expectations thanks to the strength in refining margins, Shell reported on Thursday.
That margin strength was the result of supply shortages, not stronger demand, and the "downstream" refining performance masked a poor quarter for "upstream" oil and gas production and prices - the drivers of industry profits in the long term.
Simon Henry, Shell's Chief Financial Officer, outlined continuing difficulties with the company's Nigerian output and said the refining bright spot would be short-lived too. "We're seeing evidence of a weak economy all around us in our downstream, marketing and our chemicals business, so the downstream rally overall could be short-lived," he told reporters on a conference call.
Shell reported current cost of supply (CCS) net profit, adjusted for charges, of $6.6 billion, down from $7.0 billion a year ago and ahead of analysts predictions of $6.3 billion. The net charge for the quarter, at $432 million against a net gain of $245 million a year earlier, was largely down to a widely expected asset writedown to account for persistently weak US gas prices and for UK tax changes.
Shell remains an extremely profitable company with healthy operating cash flow in the quarter of $9.5 billion financing net capital investment of $8.0 billion, and it has one of the best upstream output growth prospects in the sector over the coming three to four years. Shell paid out a third quarter dividend of 43 US cents a share, unchanged from the second quarter and against 42 a year ago.