Shell Hit By Asia Woes Strong Pound

Anglo-Dutch oil giant Royal Dutch/Shell Group shocked markets yesterday with fourth-quarter and annual results below expectations and a statement laced with gloom about the Asian economic crisis and oil prices.

Shell said current cost net income before exceptional items dropped 23 per cent in the fourth quarter to 1.046 billion pounds ($1.7 billion), below lowest forecasts of 1.1 billion. For 1997 as a whole, income dropped six per cent to 4.903 billion pounds while Shell Transports dividend, at 13.1 pence, also undercut forecasts.

Stunned investors, who had driven Shells stock up by more than to 431-1/2 pence, quickly offloaded shares and it slid as low as 406-1/2 pence before recovering to 411-1/2 pence. at 1350 GMT, down 10-1/4 pence on the day.

In Amsterdam, Royal Dutch Petroleum was down 2.00 guilders at 106.10 in the early afternoon.

Chairman Mark Moody-Stuart acknowledged at a news conference the companys fourth quarter results were disappointing. Our fourth quarter results are not good, he said.

But he insisted Shells downstream and chemical businesses remained robust, with the damage from the sharp oil price fall contained by cost cuts and rising output. He attributed much of the fourth quarter earnings shortfall to the impact of the $5 oil price fall last year on exploration and production.

Exploration and production has gone down on the oil price but not as much as you would expect, he said.

But analysts said Shell appeared to have been hit worse than expected across the board.

These are not particularly good figures and across every sector. When you throw in a few nasties like 70 million pounds of currency losses in the fourth quarter it doesnt look terribly pretty, said Tony Alves, analyst at Henderson Crosthwaite in London.

Its certainly out of line with the way Exxon and BP figures came in. Im not too uncomfortable about this but I am distinctly underwhelmed, he said.

Analysts said Shell appeared to have been hit across its oil and gas exploration, refining and marketing, chemicals and coal businesses. The companys return on average capital, already near the bottom of the worlds oil majors league, slid to 11.4 percent in 1997 from 13.2 percent previously.

Shell bemoaned the impact of the strong pound and dollar, noting that currency losses totalled 253 million pounds last year, an almost fivefold rise over 1996.

It attributed the 68 million pounds of currency losses in the final quarter chiefly to the further weakening in Asian currencies and said the economic downturn there would affect profits at its petrochemicals business this year.

It said the impact of the Asian crisis on its chemicals business had been limited somewhat in the fourth quarter by long-term contracts and tight supply conditions.

Shell said crude oil production rose by one percent last year to 2.3 million barrels a day and predicted output would rise to 2.6 million barrels this year.

Refining margins in Europe were expected to remain at current levels but slower growth in Asia, combined with increasing refining capacity, was likely to brake margin growth there, the company said.