Royal Dutch Shell reported an 8 percent drop in third-quarter profit as oil and gas production and refining margins fell, but the underlying result beat all forecasts, thanks to gains from financial items.
Shell said in a statement on Thursday that its current cost of supply (CCS) net profit, which excludes changes in the value of fuel inventories, fell to $6.39 billion, despite a record quarterly oil price.
Analysts said Shell had largely exceeded predictions thanks to gains at its in-house insurance unit, which covers Shell's facilities, plus higher interest income and foreign exchange gains.
Shell's London-listed "A" shares traded down 0.05 percent at 2,055 pence at 1009 GMT, underperforming a 0.5 percent rise in the DJ Stoxx European oil and gas sector index.
However, Alexandre Weinberg, analyst at Petercam in Brussels, said the operational results were still good and showed that Shell was delivering on its core strategy.
"Make no mistake, despite 3Q's refining margin turnaround, Shell remains in the earnings sweet spot," James Neale at Citigroup said in a research note.
Crude Outpul Fell
The Hague-based company said hydrocarbons production fell 4 percent to 3.137 million barrels of oil equivalent per day (boepd), just ahead of analysts' forecasts.
Production was hit after Shell was forced to sell control of its largest project, Sakhalin-2 in Russia, to state gas monopoly Gazprom, and natural field decline was not matched by new start-ups.
Shell, the world's second-largest non government-controlled oil company by market capitalisation, said output of crude -- typically oil and gas companies' highest margin business -- fell 9 percent.
Lower crude processing margins hit Shell's refining division, where CCS profits were down 24 percent.
The Anglo-Dutch company also saw a reduced contribution from its energy trading operation, echoing an unsuccessful quarter for oil and gas traders at BP.
Shell chief financial officer Peter Voser complained of rising costs, saying industry inflation was adding $1 to the cost of extracting each barrel, every year, echoing comments from BP's CFO earlier this week.
Excluding a gain of $265 million related to one-off tax impacts, Shell's underlying third-quarter net profit fell 13 percent to $6.13 billion.
This beat an average forecast of $5.52 billion for Shell's current cost of supply net profit, excluding non-operating items, from a Reuters poll of nine analysts. The highest forecast was $5.75 billion.
Shell's CCS profit decline exceeded the 5 percent fall in third-quarter profits reported by U.S. rival ConocoPhillips on Wednesday, while the drop in its underlying profit was worse than the 6 percent drop at rival BP Plc.
The CCS net profit is comparable with U.S. oil companies' published net income result, and analysts consider this figure, excluding one-offs, as the best measure of Shell's performance.