Shell, Europe's largest oil company, will stop drilling for oil in Alaska
this year as it cuts back on investments and tries to reverse a steep drop in
Incoming CEO, Ben van Beurden, said Royal Dutch Shell PLC will cut capital
spending by around $10 billion this year and sell assets to become more
He said Shell 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," Van Beurden said. He added the company would look to resolve the
legal issues "as quickly as possible".
Van Beurden took the helm from outgoing CEO Peter Voser this year and issued
a profit warning a little more than two weeks later. Many analysts took that as
a signal Van Beurden was ready to clear the decks and set a new course for the
Future investments, he said, would be "dominated" by liquefied
natural gas projects in places such as the Gulf of Mexico and Brazil.
Investors generally cheered the company's plans, and shares were up 2% at
26.27 euros in early Amsterdam trading.
Van Beurden's plan "is pretty much what we believe the market wanted to
hear," said Investec analyst Neill Morton in a note.
"After Shell's growth drive of recent years, it is 'changing emphasis'
in 2014 'to improve our returns'."
Morton predicted further writedowns in the value of Shell's North American
The big fall
Shell purchased nearly $7 billion worth of shale assets in the US on Voser's
watch, only to write down their value by $2 billion last summer.
A more detailed look at the fourth quarter earnings figures showed net
profit was $1.78 billion (130 billion euros), down 74% 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% 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.
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."
Van Beurden hinted that the company may de-emphasize investment in Nigeria,
where security concerns have weighed on production.
He also said North America is point of concern for the company. While oil
prices remain high globally, "North America natural gas prices and
associated crude markers remain low, and industry refining margins are under
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
spill workers at risk
sinks to the Gulf floor
on oil spill blasted
(Picture: Oil from Shutterstock)