Falling demand slashes 75% off Shell's bottom line.
Just two days after BP (LSE: BP) told us its annual profits for 2009 fell by 45%, Royal Dutch Shell (LSE: RDSB) has come along and trumped that with a 75% fall in the final quarter of the year (while BP's fourth quarter profits actually rose by a third).
Profits for the quarter fell to $1.2bn, from $4.8bn in the same period the year before, and full-year profits fell to $9.8bn from $31.4bn, a drop of nearly 70%. Analysts had been expecting a fall this year, but not one quite that big.
Shell put its plummeting profits down to a combination of falling demand, caused by the world's economic woes, and a drop in refining margins -- just as BP did earlier in the week. As chief executive Peter Voser, put it...
"Oil prices have increased compared with a year ago, but gas prices and refining margins have declined sharply, because of weaker demand and high industry inventory levels. We are not assuming that there will be a quick recovery, and the outlook for 2010 is uncertain."
Margins falling
Those margins certainly do seem to be having an adverse effect, as the company's final quarter downstream operations showed a loss of $1.8bn, compared to $560m profit the previous year. Even after adjusting for an exceptional net charge of $1.3bn, that still leaves it in the red.
Shell doesn't expect retail demand to recover any time soon, and plans to deal with the problem by slashing its refining by 560,000 barrels a day (15% of its current capacity) and shedding 1,000 jobs more, on top of the 5,000 job losses stemming from from the company's 2009 moves that brought a corresponding cost saving of over $2bn.
Nice dividend
A fourth quarter dividend of 26.36p per share will be paid, bringing the full year dividend to 106.25p, which is pretty much bang on what the market was expecting.
Shell, along with the rest of Big Oil, might be in for another lean year, or maybe two, but as long as it keeps earnings and cash flow ahead of dividends, which it is still managing to do, I reckon investors should be able to carry on sitting back and lapping up its 6% dividends quite happily until demand starts to grow again, which it surely will.
More from Alan Oscroft
> Alan owns shares in BP.
