August 2, 2013 by Akinpelu Dada with agency report
Crude oil being illegally transported in the Niger Delta
| credits: Nigerianbulletin.com
| credits: Nigerianbulletin.com
Royal Dutch Shell has reported a $700m loss from its Nigerian operations due to crude oil theft and other issues in the country.
Apart from the situation in Nigeria, rising costs and weak United States shale liquids production have also hurt profits, adding both to the upward pressure on spending and to uncertainty on output growth.
The pressures, according to Reuters, prompted outgoing Chief Executive, Peter Voser, to abandon the company’s target to deliver four million barrels a day of production by 2017. They also resulted in a $2.2bn charge against the group’s US shale business.
Voser’s abandonment of output targets brings Shell into line with other oil companies, and shows how the industry is struggling to translate investment into oil.
Voser called the company’s second quarter result, published on Thursday, “disappointing,” but said a financial target to achieve $175bn-$200bn of cash flow from operations for the period 2012 to 2015 was intact.
In Nigeria, Shell’s share of onshore production has fallen to 158,000 barrels a day in the second quarter from 260,000 in 2012. Overall, the country’s production has dropped by 500,000 barrels a day over the past few years to around two million.
Shell has been selling its Nigerian onshore assets where most of the problems lie and said in June it would sell more Niger Delta assets.
On Thursday, it said it would be getting rid of about 80,000 to 100,000 barrels of production in this way. Oil industry sources pointed this week to four blocks that are for sale.
The company’s stock fell 5.0 per cent – a big drop by the standards of normal trading day in Europe’s biggest oil company – as analysts geared up to cut annual profit forecasts. The shares ended the day at £21.33, down 4.7 per cent.
Shell said it took a $700m hit for Nigeria thefts and other issues in the country, which it said cost the country itself $12bn a year – and for the tax impact of a weakening Australian dollar.
Shell has put more of its Niger Delta activities up for sale.
“Higher costs, exploration charges, adverse currency exchange rate effects and challenges in Nigeria have hit our bottom line,” said Voser, who is due to retire and be replaced by downstream chief, Ben van Beurden, at the end of this year.
“These results were undermined by a number of factors – but they were clearly disappointing for Shell,” he added.
Adjusted second quarter net earnings on a current cost of supply basis came in at $4.6bn, down from $5.7bn a year ago and below analysts’ expectations of around last year’s figures.
“There are mitigating factors, but we would expect our forecasts to fall by about five per cent,” Investec analyst, Neil Morton, said in a research note.
Including adjustments, Shell’s CCS result was lower still at $2.4bn, mainly due to the $2.2bn charge for liquids-rich shale properties in North America.
Shell said this reflected exploration and appraisal drilling results and production information that was not as positive as previously hoped.
These assets are also under a review now, which will lead to divestments and a refocusing of investment into fewer plays, with growth potential, Shell said in its statement.
The company vies with United States-based Chevron for the world No. 2 spot among listed oil companies behind Exxon Mobil. Exxon also reported lower profits on Thursday.
Shell’s results came in the same week as disappointing results from rival BP, and on the same day as smaller Italian group was forced to cut its output target — partly because of Nigerian troubles.
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