Royal Dutch Shell 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.
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It also follows a similar warning from Chevron Corp , the second-largest U.S. oil company, last week as the industry grapples with how to replace reserves and control costs.
"Our 2013 performance was not what I expect," van Beurden said, announcing a cut in forecasts of fourth-quarter earnings excluding identified items on a current cost of supplies (CCS) basis to $2.9 billion, from market expectations of about $4 billion.
Analysts at Bernstein said adjusted earnings of $2.9 billion would be Shell's lowest since the same period in 2009. Bernstein had expected $4.2 billion for the fourth quarter.
Shell had also missed analyst forecasts for its third-quarter trading in October, saying weak refining profit margins, higher production costs and output stoppages in Nigeria had weighed on its performance.
Shares in the group fell more than 4 percent at the open. At 0918 GMT, they were down 3.1 percent, wiping 4.4 billion pounds ($7.2 billion) off Shell's market value. Shares in rival BP , No. 5 among investor-controlled oil and gas groups worldwide, were down 1.1 percent.
"Shell's profit warning is a confirmation of the impact of the downward trend in oil prices we've seen," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. "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.
Shell said its fourth-quarter results, expected on January 30, would be significantly lower than recent levels of profitability, due to weaker oil and gas prices and problems with its refining business.
In the third quarter, CCS earnings excluding identified items came in at $4.5 billion, down from $6.6 billion in the same period of 2012.
The big drop in profits has been led by the significantly weaker industry refining conditions that have been widely flagged by the company and its peers.
Rising costs of production and exploration in the main oil and gas division have also been a major factor, along with the production impact of maintenance and asset replacement.
Since van Beurden began working alongside outgoing boss Peter Voser at the beginning of the fourth quarter, the company has canceled plans to build a gas-to-liquids (GTL) plant in the United States, raising investor hopes of tighter spending.
The 55-year-old van Beurden, who joined the Royal Dutch/Shell Group of Companies in 1983 and has held a number of technical and commercial roles, 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."
The unscheduled announcement, giving a raft of new forecasts for Shell, also raises the chances that the new boss will be able to use the January 30 results day to set out his new strategy. Investors had expected that to come during a Management Day scheduled for March.
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.
Though not widely known outside Europe's top oil company, van Beurden is respected inside it and was described by one former Shell executive as "'The Quiet Man' within Shell - but enormously determined".
Atif Latif, director of trading at Guardian Stockbrokers, said the warning should be seen as a "short-term blip" in what is otherwise a strong growth story given that market expectations are at the lower end of the range.
The group has also said it expects to ramp up its divestment program this year. ($1 = 0.6119 British pounds)
(Reporting by Kate Holton; Editing by David Goodman)