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Shell in slashing mode: Cuts Americas spending by 20% after losses in shales

BY EDUARD GISMATULLIN

THE HAGUE (Bloomberg) -- Royal Dutch Shell plans to lower spending in the Americas by a fifth as Europe’s largest oil producer focuses on more profitable operations. It’s “not acceptable” that Shell, now deploying about 36% or $80 billion of its capital in North America, has been losing money, Chief Executive Officer Ben van Beurden said.

Shell expects to reduce capital investment in upstream operations, or exploration and production, in the Americas by 20% this year and North American resource spending by the same proportion, the company said today in a presentation.

“That leaves us with about $10 billion in total for the upstream Americas and about $4 billion for the shale,” Chief Financial Officer Simon Henry said. “Some of that does include Argentina and Canada. It’s not all in America.”

Van Beurden has pledged to shrink spending costs this year and speed up asset sales including refineries after The Hague-based company issued its first profit warning in a decade. He also scrapped targets for cash flow, delayed drilling off Alaska and promised to restructure shale operations in North America.

“Upstream Americas profitability has been impacted by losses in resources plays such as shales,” Shell said today in a statement. “The company intends to drive hard choices on capital allocation for selective growth and divestment of non- strategic positions.”

Underperforming Areas

Unprofitable shale investments added to a 48% drop in fourth-quarter profit, the Anglo-Dutch company said Jan. 30. “Shell reiterates its aim to improve two underperforming areas,” U.S. shale projects hurt following a rush to expand, and refining and fuel sales, Investec Bank Plc said in a note.

Refining and fuel marketing were weaker than chemicals, lubricants and biofuels, and the company plans to separate those business operations into distinct units, Shell said. Van Beurden plans to dispose of about $15 billion of assets through 2015. Shell agreed to sell holdings valued at more than $4.5 billion, including in Australia and Brazil, and is seeking buyers for stakes in oil and gas fields, as well as pipeline and fuel-marketing assets from the U.S. to Nigeria. The company may also exit its $6.3 billion investment in Woodside Petroleum Ltd.

“We had a good start,” Van Beurden said. Let’s “see whether we need to adjust the number” for the divestment plan. The CEO and Henry indicated in January that first-quarter profit will be curbed by lower output after the end of a project in the United Arab Emirates and caps on Dutch gas output.

03/14/2014

 

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