Shell Earnings Miss Estimates

Royal Dutch Shell Plc, Europe’s biggest oil company, posted earnings that missed analyst estimates for the first time in a year on weak refining margins.

Excluding one-time items and inventory changes, Shell earned $4.1 billion in the fourth quarter. That missed the $4.7 billion mean estimate of 16 analysts surveyed by Bloomberg. The shares fell the most since July in London trading.

“Shell’s results have fallen well below expectations,” said Stuart Joyner, an analyst at Investec Bank Plc in London. “We will likely mark down our refining and marketing forecast for 2011.”

Chief Executive Officer Peter Voser, who is targeting asset sales of as much as $5 billion this year, said Shell is “on track” to boost output by 11 percent between 2009 and 2012 with new projects from Brazil to Qatar. Refining profits remained “under pressure” last quarter because of “increased downtime at major refining facilities,” Shell said.

Shell’s class-A shares in London were down 3.1 percent at 2,197 pence as of 8:47 a.m. The stock has risen 24 percent in the past 12 months.

Close rival BP Plc posted adjusted profit of $4.4 billion earlier this week, missing analysts’ expectations of $5 billion. Exxon Mobil Corp., the world’s largest company, reported its highest quarterly net income in more than two years of $9.25 billion.

Net income increased to $6.79 billion from $1.96 billion a year earlier, The Hague-based company said in a statement today, boosted by higher oil prices.

Output Gains

Full-year production at Shell rose 5.5 percent to 3.314 million barrels of oil equivalent a day. Output from Shell’s Nigerian operations rose by about 120,000 barrels a day in the period, “driven by the ramp-up of new projects and improved security conditions,” according to Shell.

Increased production taxes and lower trading contributions weighed on the latest results, Shell said. U.S. earnings were curbed by higher operating expenses, mainly related to the ramp- up of the Jack Pine Mine at the Athabasca Oil Sands Project in Canada. Net capital investment totaled $23.7 billion in 2010, short of the planned $28 billion announced last February.

‘Strong Cashflow’

“What marks Shell out from the other majors is heavy capital expenditure and strong cashflow,” said Colin McLean, chief executive officer of SVM Asset Management Ltd. in Edinburgh, who oversees about $900 million, including Shell shares. “It’s starting to reap the benefits of major projects.”

This year, the company plans to spend between $25 billion and $27 billion on projects including a $1.6 billion investment in a biofuels venture in Brazil, Voser said.

Shell will start the Pearl gas-to-liquids and Qatargas 4 liquefied natural-gas ventures in the Middle East, helping to boost output to the equivalent of 3.5 million barrels of oil a day in 2012. It pumped the first offshore gas at the LNG project in Qatar earlier this year.

The producer cut costs by $2 billion in 2010, pushing total savings from 2009 up to $4 billion.

Shell participated in two oil and gas discoveries in Brazil and Brunei last quarter, bringing the total number for the year to eight. It agreed to expand exploration in China, Greenland, Qatar, Russia, Tunisia and the U.S. last year.

It completed the sales of marketing businesses in Gibraltar, Panama, Costa Rica and Laos.

Oil Prices

Brent oil averaged 16 percent more in the fourth quarter than the year-earlier period. U.K. natural-gas prices were 88 percent higher.

Shell last year managed to reverse a seven-year drop in production after starting projects in Brazil, Nigeria, Canada and the Gulf of Mexico. It has been assessing more than 35 projects to maintain output growth until 2020. Shell estimates cash flow will grow 80 percent in the three years to 2012 with oil averaging $80 a barrel.

BP expects production to fall 11 percent to about 3.4 million barrels a day of oil equivalent this year.

In October, Shell said it expected to book charges in the fourth quarter arising from disruptions to drilling in the Gulf of Mexico. Production from the region, which accounts for about a third of Shell’s total production in the Americas, will be 40,000 barrels less a day than previously expected this year.