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Yedlin: Shell’s profit warning a wake-up call

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Several factors conspire to hurt returns

By Deborah Yedlin, Calgary Herald January 21, 2014

What will be next for Royal Dutch Shell? Last Friday, the company issued a profit warning, announcing that fourth-quarter net income was going to be $2.9 billion US, down from $5.6 billion in the same period a year earlier.

It was the first such warning in a decade.

The company blamed a number of factors, including challenges on the refining side of its business, rising exploration costs and other challenges related to operating in countries such as Nigeria, where security continues to be a problem.

Because of this, news on Monday that Royal Dutch is selling its stake in the Wheatstone natural gas project in Australia for $1.14 billion to the Kuwait Foreign Petroleum Company shouldn’t have come as a big surprise.

Royal Dutch’s situation is even more surprising, given the fact oil prices have been relatively stable – in the $100 US per barrel range for Brent and around $90 per barrel for West Texas Intermediate.

Add in the fourth quarter resurgence in natural gas prices last year and it becomes an interesting puzzle.

How exactly should investors look at Royal Dutch? 


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