Shell cuts spending in U.S. to lower shale exposure
BY KAROLIN SCHAPS AND DMITRY ZHDANNIKOV
LONDON Thu Mar 13, 2014 4:28pm EDT
A logo for Shell is seen on a garage forecourt in central London March 6, 2014.
CREDIT: REUTERS/NEIL HALL
(Reuters) – Royal Dutch Shell (RDSa.L) will cut spending by a fifth and lay off staff at its American exploration and production business, the company said on Thursday, in another sign that oil majors are struggling to profit from the booming U.S. shale sector.
Oil and natural gas pumped from North American shale have proved a boon for many smaller energy businesses, but the world’s biggest oil companies, including BP (BP.L) and Exxon Mobil (XOM.N), have had less success unlocking the prolific rock’s full potential.
London-based BP announced last week that it is to spin off its onshore U.S. oil and gas assets into a separate business to improve performance.
“Financial performance there is frankly not acceptable … some of our exploration bets have simply not worked out,” said Ben van Beurden, who was head of refining before being promoted to Shell’s top job at the start of the year.
Oil companies active in North American shale have broad exposure to profit-sapping U.S. natural gas, prices of which fell to their lowest in a decade during 2012 but rebounded as a cold winter depleted gas in storage.
Sentiment on the outlook for the fuel is improving with the prospect of liquefied natural gas (LNG) exports and increased industrial use, but uncertainty remains.
The spending cuts announced on Thursday follow Shell’s decision in January to suspend its controversial Arctic drilling program and pledge to cut capital expenditure and streamline operations worldwide after the company’s least profitable fourth quarter in five years.
“I don’t think it is a matter of trying to reinvent the company in a fundamentally different way; it is a matter of tackling some of the issues that we know need tackling,” van Beurden told journalists on a conference call after Thursday’s strategy update.
The Anglo-Dutch oil major is sticking to its 2014/15 asset divestment target of $15 billion, of which $4.5 billion has already been announced.
It also said that it is too soon to say whether capital expenditure will decline next year from the planned $35 billion this year.
Shares in Shell were down 0.3 percent at 1431 GMT, against a 0.2 pct dip for the blue-chip FTSE 100 index .FTSE.
Shell, which is already selling more than 700,000 acres of U.S. shale assets, said it will cut permanent staff and contractors in North American onshore oil and gas exploration by 30 percent.
The intent is to reduce headcount this year by about 400 Shell staff to about 1,400 people, many of whom will be redeployed to higher priority projects, a Shell spokeswoman said. The number of contractors working in this area for Shell is smaller than the number of permanent staffers, she added.
The company last year lost $900 million in its upstream Americas unit.
Shell owns shale gas acreage in the Mercellus shale in Pennsylvania, Texas, Colorado and Kansas, more of which it said it may have to sell.
Besides the Americas, global downstream operations also remain a drag on business because of low refining margins as well as oil theft in Nigeria that cost the company close to $1 billion last year.
Shell is also involved, together with Exxon Mobil (XOM.N), Total (TOTF.PA), Eni (ENI.MI) and KazMunaiGas, in the giant Kashagan oil field in Kazakhstan, which has been plagued by start-up problems.
Shell said the field had the potential of generating $1 billion in annual cashflow for the company but acknowledged that the production outlook remains unclear.
Van Beurden added that Shell operations in Ukraine, where it has a number of pump stations and early exploration works, have not been affected by the country’s dispute with Russia and that Moscow’s intervention in Ukraine has so far had no impact on the company’s investment decisions in Russia.