Anglo-Dutch oil giant Royal Dutch Shell (LSE: RDSB)shocked the City with a profit warning last week. Some of the problems it discussed, such as loss-making shale gas projects in America and ongoing issues with oil theft in Nigeria, are not new.
However, Shell is also now making less money from refining (turning oil into other products) and selling petrol. Some of its high-value oil and gas fields have suffered from higher-than-expected costs and have been producing less than hoped too.
Yet it's always a good idea to watch the City's reaction to these sorts of warnings, and the reality is that no one seems to be particularly concerned the shares really haven't fallen much. So you can't help thinking that the new chief executive Ben vanBeurden is doing some clearing of the decks now so that lifemight be a little easier for him later on.
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That said, Shell has a lot of work to do as it continues tounderperform its peers. It needs to stop spending money andfocus on getting more cash through the door. The companyknows this and is on the case.
It has some good assets, strongfinances and a decent dividend, which analysts expect to bemaintained. Providing oil prices stay between $80 and $100per barrel, Shell could be generating lots of surplus cash in acouple of years' time. This is not the time to sell.
Verdict: buy for dividends
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