Royal Dutch Shell PLC’s new chief executive unveiled plans on Thursday to slash capital spending and stop drilling for oil in the Arctic Circle as the company reported a sharp drop in fourth quarter earnings.
CEO Ben van Beurden said the approach, which involves reducing capital spending by $10 billion this year and selling assets, will make the company more efficient now that its future growth prospects are more secure.
Mr. Van Beurden said Shell, Europe’s largest oil company, won’t drill for oil off Alaska’s coast in 2014 following a court ruling that put “significant obstacles” in the way of exploiting resources in the Arctic.
“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” Mr. Van Beurden said. However, he said the company would look to resolve the legal issues “as quickly as possible.”
Mr. Van Beurden took the helm from outgoing CEO Peter Voser on Jan. 1 and issued a profit warning a little more than two weeks later. Many analysts took that as a signal Mr. Van Beurden was ready to clear the decks and set a new course for the business. Investments, he said, would “dominated” by liquefied natural gas projects in places such as the Gulf of Mexico and Brazil.
A more detailed look at the figures showed that net profit for the quarter was $1.78 billion (130 billion euros), 74 percent down on the $6.73 billion reported a year earlier. The big fall was due to higher production costs, lower production, and worse refining margins. The swing was also exaggerated by one-off items during the two periods.
Shell said production was down 5 percent to 3.25 million barrels per day, with 2 percentage points of the fall due to wells shut in Nigeria for security reasons. The rest was due to maintenance and “asset replacement activities” old fields fading faster than new projects came online.
Mr. Van Beurden said his main focus will be on cutting spending elsewhere to focus on offshore natural gas projects. “Our ambitious growth drive in recent years has yielded a step change in Shell’s portfolio and options, with more growth to come,” he said. “But at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas.”
Without going into details, Mr. Van Beurden hinted that the company may be looking to sell assets in Nigeria where security concerns have weighed on production. He also said that while oil prices remain high globally, “North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure.”
North America appears to be a point of concern for the company in general. The Alaska announcement comes just a month after Shell said it was scrapping a multibillion dollar project to develop a natural gas-to-diesel facility in Louisiana.