LONDON Royal Dutch Shell (RDSa.L) issued a "significant" profit warning on Friday, detailing across-the-board problems and the extent of the challenges facing the oil major's new boss Ben van Beurden, who took over two weeks ago.
The warning comes nearly 10 years to the day after Shell, the western world's No. 3 oil company, revealed the so-called reserves accounting scandal, when the group dramatically downgraded its reserves estimates.
It also follows a similar warning from Chevron Corp (CVX.N), the second-largest U.S. oil company, last week and reflects how the industry is having to grapple with replacing reserves, lower oil prices and the need to control costs.
"Our 2013 performance was not what I expect," van Beurden said, announcing a cut in forecasts to fourth-quarter earnings excluding identified items on a current cost of supplies (CCS) to $2.9 billion, from market expectations of about $4 billion.
The last time the Anglo-Dutch firm reported an adjusted earnings figure as low as $2.9 billion was in the fourth quarter of 2009. Since then the main operating metric has averaged $5.6 billion per quarter.
Analysts said Shell appeared to have suffered a perfect storm in the last three months, due to weak refining profit margins, higher production costs, output stoppages in Nigeria and a weakening of the Australian dollar.
However they noted that the detailed warning would also enable the new CEO, who has been at Shell since 1983, to use the results day on January 30 and a Management Day in March to set out his new strategy.
"This should bring to an end what has proved to be something of an "annus horribilis" for Shell which has seen a key production target missed and weaker than anticipated profitability in North America," Barclays said in a note.
Shell, which dates its history back to 1833, also missed forecasts for its third-quarter trading in October.
One British-based shareholder who asked not to be named said no one was that surprised, even though the number was bad. He said it would increase pressure on the new chief executive to keep a tighter control on costs.
"There's quite a bit of expectation building for when they have their full-year results and their management day ... to chart a course which leads to more free cash being generated and ultimately better growth in dividends for shareholders.
"This warning is a reminder that there are some big structural problems."
Shares in the group fell more than 4 percent at the open but at 1115 GMT were down only 2 percent. Shares in rival BP (BP.L), No. 5 among investor-controlled oil and gas groups worldwide, were down 0.4 percent.
Shell's stock, up 1 percent over the last twelve months, has lagged Britain's blue chip index .FTSE, which is up 12 percent over the period, and also its nearest rival BP, up 7 percent.
"Shell's profit warning is a confirmation of the impact of the downward trend in oil prices we've seen," said Carsten Fritsch at Commerzbank. "In particular, the refined product markets in Europe have been very weak."
International oil prices have averaged about $110 a barrel for the past three years. Booming shale oil production in the United States has helped lower prices there, however, and delivered a competitive advantage to many U.S. refineries.
The United States has also become a major exporter of gasoline and diesel, further hitting profit margins at refiners in Europe and Asia. While Shell has a number of refineries in North America, about two-thirds of its refining operations are in Europe and the Asia-Pacific.
The group's weak performance was also due in part to outages in its liquefied natural gas (LNG) sector.
"With nearly a fifth of its LNG portfolio down for maintenance, the final quarter of 2013 was never likely to be a good quarter for Royal Dutch Shell," said Barclay's, but it added that the company remained its 'top pick for 2014' as it still had a strong free cash flow position.
Shell is the world's largest LNG shipping operator, managing and operating 50 carriers, and owning production and import assets or projects in Australia, Brunei, Malaysia, Nigeria, Oman, Qatar, Russia, and Mexico.
It became a leader in liquefied natural gas under van Beurden's predecessor Peter Voser, who rebuilt the oil company following the reserves accounting scandal.
Voser, who became finance director during the 2004 reserves crisis and CEO in 2009, believed fervently that an oil major needed to continue to invest throughout an economic cycle, rejecting calls from investors and analysts to cut back.
Since van Beurden started working with Voser in Q4 however the firm has cancelled plans to build a gas-to-liquids plant in the United States, raising investor hopes of tighter spending.
Van Beurden appeared to confirm that approach on Friday.
"Our focus will be on improving Shell's financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery," he said.
Van Beurden took the top job with little board-level experience but broad company exposure and first-hand knowledge of the gas technology on which it has bet its future. He was the head of refining when promoted to the top job. ($1 = 0.6119 British pounds)
(Additional reporting by Sarah Young and Chris Vellacott; Editing by David Goodman and Giles Elgood)