Shell announces $15-bn spending cuts as low oil prices bite

Shell CEO Ben Van BeurdenAnglo-Dutch oil and gas giant Royal Dutch Shell Plc plans to cut capital investment by $15 billion over the next three years on plunging oil prices as fourth-quarter profit miss estimates.

In its latest financial report released yesterday, Shell stated that its 2014 profits were up 14 per cent at $19 billion from $16.7 billion last year. Profits for the fourth quarter, not counting the impact of oil price on inventory, came in at $4.2 billion, up from $2.2 billion for the same quarter a year ago.

Adjusted profit considering accounting variations and one-off asset items were at $3.3 billion in the December quarter compared to $2.9 billion a year ago, which was well below analysts' forecast of around $4.1 billion and the previous quarter's $5.9 billion.

Shell's upstream earnings were approximately $1 billion less than market expectations at $1.7 billion, although higher earnings of $1.6 billion from its oil refining and marketing operations could mitigate its effect on headline profits.

Oil prices have plunged over 55 per cent from their June highs. Brent crude fell to a near six-year low yesterday morning on data showing fresh inventories build up, but inched up to $49.13 a barrel on short covering at the end of the day.

The company's CEO Ben Van Beurden said, ''Our strategy is delivering, but we're not complacent. Weaker oil prices underline that there's a lot more to do.''

''The three themes of financial performance, capital efficiency and project delivery will remain as Shell's priorities in 2015,'' he added.

The company said that it is defering spending in many areas, exiting selective growth positions, and driving costs down in the supply chain and these efforts would result in reduction of potential capital investment for 2015-17 of over $15 billion.

Shell expects 2015 organic capital investment to be lower than 2014 levels.

''Shell has options to further reduce spending but we are not over-reacting to current low oil prices.  The drop in oil prices has put investment levels ''under severe pressure in the near term,'' the company said.

Shell has divested about $15 billion of assets in 2014 before the oil market slump and reduced spending to improve capital efficiency.

In 2014, the oil giant announced $12 billion in dividends and bought back $3.3 billion of shares, despite its pull out from US shale prospecting and Alaskan ventures.

The company will pay a dividend of 47 cents in the fourth quarter same as in the previous quarter and said that it would continue to pay the same in the first quarter of 2015.

 ''Shell is taking structured decisions to balance growth and returns,'' Van Beurden said.

Unlike his other counterparts in the industry, Beurden is optimistic that Brent prices would reach a long-term equilibrium of $90 a barrel, although he did not predict when that would happen.

The Hauge, Netherlands-based Shell, Europe's largest oil company by market value, has operations in 70 countries and has around 90,000 employees.

Yesterday, US oil giant Conoco Phillips also announced plans to cut its capital budget by another 15 per cent as the company posted a $39-million loss in the fourth quarter, compared to a $2.5-billion profit a year ago.

The company said it would pare spending to $11.5 billion from $13.5 billion earlier.  Conoco had already made a 20 per cent cut in its spending plans for 2015 anticipating the glut in the market due to increased shale oil production in the US and OPEC's decision not to cut production.