Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) reported its fourth quarter earnings this morning, greatly missing consensus. The company posted fourth quarter profits of $5.6 billion, compared to the consensus of about $6.3 billion. Nonetheless, those results were still 15 percent over last year’s fourth quarter profits.
The European oil giant’s full-year earnings were $25.1 billion, an increase of 2 percent from 2011. The company said it missed earnings expectations because of drilling operation problems in Alaska. Production and exploration earnings were just $4.4 billion, a drop from last year’s $5.1 billion in earnings. The company’s U.S. production and exploration business posted a $69 million loss, some of which was due to a drop in natural gas prices. It also said it replaced just 44 percent of its 2012 oil and gas reserves, which indicates even bigger problems with the company’s exploration efforts.
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Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) increased its capital investment forecast for this year to $33 billion, a 10 percent increase. This is another problem for the company because it indicates that it might not be able to control costs.
However one bright spot for the oil giant was its Qatar gas-to-liquids plant, which is now up and running and adding 235,000 barrels of oil per day to the company’s production. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) said it plans to increase its first quarter dividend to 45 cents per share.
Analysts at Bank of America Merrill Lynch issued a report to investors this morning right after Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) released its earnings report. They have reiterated their Neutral rating and $72.50 price objective on the stock because they continue to see risks associated with the stock.
BAML analysts are especially concerned about the company’s medium term capital expenditures, which they say seem to be “on a steep upward trajectory.” They don’t believe the company’s current “healthy momentum in cash flow generation” will result in shareholders seeing “materially higher dividends.” Shares of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) are now at a 10 percent premium compared to the company’s key peers.
The stock fell about 2 percent in pre-market trading after the company released its earnings report.