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Refining underpins Shell Q3 as output stalls

By Andrew Callus

LONDON (Reuters) - World No. 2 oil company Royal Dutch Shell , seen as having some of the best output growth assets in the business, joined its peers in suffering lower production in the third quarter.

Profits came in ahead of expectations thanks to the temporary strength in refining margins that have masked a poor quarter so far in terms of pointers for the long term prospects of the world's top oil companies.

Shell reported current cost of supply (CCS) net profit of $6.1 billion, down from $7.2 billion a year ago. Stripping out the charges based on an asset writedown for weak U.S. gas prices, UK tax changes and other factors, the result was $6.6 billion, ahead of analysts predictions of $6.3 billion, with better than expected refining margins delivering most of the outperformance.

"The upstream was profit delivered as everybody had expected but beneath that volumes are actually quite weak, below 3 million barrels a day for the first time in three years in what's supposed to be a growth year." said Royal Bank of Canada analyst Peter Hutton.

Production shut-ins in Nigeria due to security breaches there contributed to a fall in global liquids production of 5 percent. Gas output fell 4 percent.

Even accounting for these factors and other one-offs, Shell's oil and gas output grew only 1 percent. The struggle for output growth has been a feature of the third quarter earnings season for all the top oil companies so far.

Exxon Mobil is due to report later on Thursday.

Shell said the net charge for the quarter, at $432 million against a net gain of $245 million a year earlier, also included $134 million for "legal and environmental provisions".

Shell paid out a third quarter dividend of 0.43 cents, unchanged from the second quarter and against 0.42 a year ago.

U.S. WRITEDOWN

Some analysts said Shell's U.S. impairment charge might have been worse.

"Impairments were more limited than some could have feared. Given Shell's position onshore gas in the US and given competitors' massive write down in Q2-12, some were fearing that Shell would have to carry the same exercise," said Cheuvreux analyst Dominique Patry in a note.

Shell shares were up 0.56 percent in early trade at 2,137 pence, slightly outperforming the sector index <.SXEP> which was down 0.3 percent.

(Reporting by Andrew Callus; Editing by Sarah Young and Hans-Juergen Peters)

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