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Shell pledges spending cuts, asset sales to restore profit

BY EDUARD GISMATULLIN

THE HAGUE, Netherlands (Bloomberg) -- Royal Dutch Shell Plc CEO Ben van Beurden promised to slash capital spending and accelerate asset sales to revive earnings at Europe’s largest oil producer.

Shell, which made its first profit warning in a decade this month, dropped targets for cash flow, postponed plans to drill in Alaska and pledged to restructure its shale operations in North America, it said today in a statement. The Hague-based company also raised its dividend.

“We have lost some momentum in operational delivery, and we can sharpen up in a number of areas,” van Beurden said in the statement. “2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance.”

Van Beurden, who took over from Peter Voser at the start of the year, is trying to win investor confidence after the company’s fourth-quarter profit fell to the lowest since 2009. Unprofitable shale investments in North America, weak margins from oil refining worldwide and dud exploration wells all cut earnings as the rising cost of developing fields saw net capital spending reach a record $44 billion last year.

“The focus has to be on capital efficiency, capital discipline -- hopefully they can deliver it,” said Jason Kenney, an analyst at Banco Santander SA in Edinburgh. “Shell’s loss-making Americas and oil product divisions with a combined about $80 billion capital employed, really do need attention.”

The combination of rising costs and stagnant oil prices has curbed profits throughout the oil industry. ConocoPhillips, Chevron Corp. and BG Group Plc have all warned investors fourth-quarter profits will be lower than expected.

Exxon Mobil Corp., the biggest U.S. oil company, will report results later today along with Conoco and Occidental Petroleum Corp.

Shell had planned to invest $130 billion and generate $200 billion in cash flow in the period 2012 to 2015. It will reduce spending including acquisitions to $37 billion this year, down from $46 billion in 2013, the company said today.

“Restructuring and improving profitability in North America” resource plays and oil products “worldwide, is a particular focus for the company,” Shell said in the statement.

The Anglo-Dutch company today said profit excluding one-time items and inventory changes plunged 48 percent from a year earlier to $2.9 billion in the fourth quarter on exploration expenses and lower production. That matched the drop Shell forecast on Jan. 17 also because of losses in the Americas, lower refining margins and production disruptions in Nigeria and elsewhere.

Oil and gas production fell about 5 percent to 3.25 million barrels a day, it said. Shell also took a $631 million exploration charge in the fourth quarter.

Shell will increase first quarter dividend payout by 4 percent to 47 cents a share, it said today.

The shares rose as much as 3 percent to 2,189.5 pence in London and traded at 2,186.5 pence at 10:06 a.m. local time.

The company has agreed to sell holdings valued at about $2.1 billion in Australia and Brazil. It’s seeking buyers for interests in oil and gas fields, in pipeline, fuel-refining and marketing assets from the U.S. to Nigeria. It may also exit its investment in Woodside Petroleum Ltd. worth about $6.3 billion.

“Shell has received indications of interest to acquire its refining and parts of its marketing portfolio” in Australia, it said today. The company “is also considering the sale of certain of its marketing assets in Norway and Italy.”

It sold about $300 million in assets including liquids-rich shales holding in Ohio in the fourth quarter. Shell secured new exploration acreage in Greenland and Tunisia in the period.

01/30/2014

 

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