Economy

Shell Q3 profits hit by lower production

AMSTERDAM (AP) — Royal Dutch Shell PLC, Europe's largest oil company, says third quarter earnings fell due to weaker demand for fuel and a drop in output, particularly in Nigeria, where attacks on pipelines have forced shutdowns.

Earnings on a so-called "current cost of supplies basis" — which strips out the impact of fluctuations of oil prices between when it is produced and when it is sold — fell to $4.25 billion (3.10 billion euros) from $6.15 billion in the same quarter a year ago.

Net profit, which does not strip out those fluctuations, fell to $4.68 billion from $7.16 billion. "We are facing headwinds from weak industry refining margins, and the security situation in Nigeria, which continue to erode the near term outlook," said CEO Peter Voser, who will be replaced at the end of the year by Ben van Beurden.

Shares in the company were down 4.3 percent at 24.36 euros in early trading in Amsterdam. Chief Financial Officer Simon Henry said earnings will recover in 2014 as investment costs fall, but the company is still planning significant capital expenditures.

He promised that 2013 will be its "peak investment" year, and the company expects to choose which businesses to divest and which to develop further from among a large group of projects it has assembled in recent years — notably off the coast of Alaska in the Arctic circle.

He said Shell's strategy will pay off in the long term, though its share price has underperformed those of other major oil companies this year. Shell has suffered setbacks in Alaska due to faulty equipment and fierce opposition from environmental groups. Greenpeace says drilling there is reckless given the harsh weather conditions and because the environment is under threat from global warming.

Simon said the company will prioritize development of only one of its two Alaska projects, that in the Chukchi sea, rather than another in the Beaufort Sea, because "that's the multibillion barrel prize."

He said the company hopes to resume exploratory drilling in the Chukchi in 2014, but that will depend on obtaining permission. "Clearly we would like to drill as soon as possible," he said. Shell's production in the third quarter fell by 2 percent to 2.93 million barrels per day, causing its "upstream" earnings to fall 29 percent to $3.46 billion.

The company's shutdowns in Nigeria cost it 65,000 barrels of oil per day. Without that, output would have risen 1 percent, the company said, as new production in Qatar and from shale gas in the U.S. added more than enough to offset declines in older fields.

Downstream earnings, which include the refining and chemicals businesses, fell 43 percent due to overcapacity and weak demand. Shell's consolidated revenue was $117 billion, from $112 billion in the same period a year ago.

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