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Shell shocked
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November 5, 1998: 8:56 a.m. ET
Analysts fail to predict scale of oil giant's vulnerability to Asia crisis
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LONDON (CNNfn) - Royal Dutch/Shell shocked analysts after it posted a 56 percent drop in third-quarter profits to $845 million Thursday. In the same period a year ago, the company reported operating profits of $1.8 billion.
Analysts were expecting profits in the region of $950 million. The fall has highlighted the differences between Royal Dutch/Shell and rival British Petroleum, set to merge with US oil giant Amoco (AN). BP earlier this week posted results slightly ahead of analysts' forecasts.
"We all put in the same parameters for BP and Shell, but BP just comes out better," said Peter Hitchens, an oil analyst at brokerage Williams de Broe. "The differences in management between the two groups are really beginning to show through."
Shares in U.K.-listed Shell Trading and Transport fell over 5 percent to 357 pence on Thursday's figures. BP stock was flat.
Return on capital in the year to Sept. 30 fell from 12.1 percent to 9.2 per cent.
Shell blames its problems on the weakness of crude oil prices and the Asian economic crisis. It has been pursuing a restructuring program in recent years aimed at cutting costs and lifting ROC to 15 per cent by 2001.
"Shell is getting near crisis point. Although the Asia crisis has bottomed out, the rest of the world has dropped off," said Hitchens.
The crisis has hit Shell's chemicals side hard. Profits were down from $218 million to $27 million. By contrast, BP reported chemicals profits down to $66 million from $141 million. Analysts blamed Shell's high costs.
Despite investors' falling confidence in the stock, the company is unlikely to respond with changes to the board because of the group's complicated Anglo-Dutch lines of authority.
Although the exploration and production arm also was down sharply, petroleum refining and marketing activities fared better.
Some observers said Shell stock was suffering because brokers were talking up BP, whose stock is in demand ahead of its merger with Amoco.
"Everyone wants to make a bull case for BP," said Liz Butler at Panmure Gordon.
Butler said Shell was on the verge of lay-offs and had sufficient cashflow to cover its dividends. Analysts' forecasts were said to have been inaccurate because of the complexity of the company compared to BP.
The price of crude fell 30 percent in the third quarter compared with the same period last year, with prices averaging $12.45 per barrel. 
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Royal Dutch/Shell
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