Shell reports falling profits

Annual profits at Royal Dutch Shell fell last year to $16.75 billion (£10.05 billion), from $27 billion in 2012. The oil major's annus horribilis was a result of an oversupply of global capacity and lower demand, plus the deteriorating security situation in Nigeria, the oil major said on Thursday.

Shell's management outlined its recovery plan to the market, which includes a more detailed segmentation of the business into performance units, which they said would increase accountability and "drive hard choices on capital allocation for selective growth, and divestment of non-strategic positions, to improve cash flow and return".

The company will focus on the core business engines such as oil & gas production, which produce high returns and strong cash flow, and refining, although that business is currently headwinds in oil products.

There are also plans to develop growth businesses such as integrated gas, where earnings have increased by some 400% from 2009 (to $9 billion in 2013), and deep-water projects, and to identify maturing opportunities including Nigeria, Iraq, Kazakhstan and global resources plays, where returns in 2013 faced problems such as losses in North America and the unrest in Nigeria.

Spending this year will be slashed by a fifth against 2013 on Americas production in areas such as shale gas, while redirecting onshore investment to the lowest cost gas acreage with the best integration potential, and into exploration in liquids-rich shales.

The company also proposes to break up its downstream business into distinctive areas to offload underperforming operations in weaker refining and fuel marketing activities. Strong businesses such as chemicals, lubricants and bio-fuels will be retained.

Shell, which outlined massive cuts and the suspension of its controversial Arctic drilling programme in January, also announced plans to offload a further $1.5 billion of assets in 2014-15. It will exit from Australia and Italy refining, Wheatstone LNG in Australia and US gas-to-liquids.

Dividend growth is expected to be 4% for the first quarter of 2014.

Chief executive Ben van Beurden said: "I am determined that, by focusing sharply on our three key priorities - better financial performance, in particular in our Upstream Americas and Downstream businesses, enhanced capital efficiency, and continuing strong project delivery, we will continue to grow our cash flow and improve our returns.

"With sharper accountability in the company, this approach will target growth investment more effectively, focus on areas of the business where performance improvement is most required, and drive asset sales from non-strategic positions."

He said the $35 billion organic investment programme for 2014 and the $15 billion divestment targets for 2014-15, announced earlier this year, reflect an ongoing commitment to grow the company and at the same time to increase divestments to more typical levels, after a slow down in 2013. Project start-ups from 2010 onwards added $9 billion (over 20%) to the company's 2013 cash flow, with more growth to come, he said.

Following the warning in January, there was nothing new in the revelations about the challenges facing the company and nothing novel in the management's plans to improve focus on profitability, so the announcement today left the shares more or less flat at 2,321p.