LONDON -- Shell (IW 1000/1) issued a severe profits warning today blaming exploration costs, pressures across the oil industry and disruption to Nigerian output, sparking a sharp drop in its share price.
The London-listed energy group said in a surprise trading update that fourth-quarter profits were set to be "significantly lower than recent levels of profitability."
Profit on a current cost of supplies (CCS) basis or current-cost accounting -- which strips out changes to the value of oil and gas inventories -- was set to plunge 70% to about $2.2 billion (1.6 billion euros) in the three months to December.
That would mark a fall from $7.3 billion in the same period of 2012.
Over the whole of 2013, CCS profit was expected to dive 38% to $16.8 billion.
The grim figures caused Shell's share price to fall heavily in early morning deals in London, before later clawing back some ground.
"Shell's fourth quarter 2013 earnings were impacted by weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes," the company said.
Excluding one-off items, CCS profit sank to $2.9 billion in the fourth quarter, down from $5.6 billion in the same part of 2012.
"Our 2013 performance was not what I expect from Shell," said chief executive Ben van Beurden in the gloomy update, published just two weeks after he took the helm at the Anglo-Dutch major.
"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."
Net profit was set to plunge by 73% to $1.8 billion in the fourth quarter of 2013, compared with the outcome a year earlier, Shell added.
Annual net profit was expected to slide 38.5% to $16.4 billion in 2013, from $26.7 billion in 2012.
Friday's dire earnings update was published ahead of Shell's official annual results statement, which is scheduled for publication on Jan. 30.
In late morning deals, Shell's 'A' share price slid 2.25% to 2,145.52 pence on London's FTSE 100 index of top companies shares, which rose 0.36% to 6,839.49 points.
Friday's warning marks a downbeat start to Van Beurden's tenure as chief executive. The Dutch national took over from Peter Voser on January 1.
"Shell has fallen far less than expected this morning, despite its profit warning," said Rebecca O'Keeffe, head of investment at online stockbroker Interactive Investor. "The company appears to have lost its way somewhat and is invested in areas of the market that are not doing well.
"However, with a new CEO who can hopefully make fundamental changes to their investment strategy and with the current oil market very stable, Shell can turn things around," she added. "In addition, the major shortage of reliable income stocks in the UK mean it is still an attractive proposition for many investors."
Shell had revealed in May that Voser would retire in 2014 to spend more time with his family. He had been chief executive since July 2009.
Copyright Agence France-Presse, 2014