31 January 2014

Shell to stop drilling in Alaska this year

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 earnings.

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 earnings.

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 efficient.

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".

Improving returns

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 business.

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 shales assets.

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.

De-emphasising investments

"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 pressure."

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.

Read more:

Oil spill workers at risk

Oil sinks to the Gulf floor

Estimates on oil spill blasted

(Picture: Oil from Shutterstock)


Read Health24’s Comments Policy

Comment on this story
Comments have been closed for this article.

Live healthier

Looking younger »

Can maple leaves help you look younger?

New research has found that maple leaf extract can help you look years younger.

Killer foods »

Wild mushrooms a 'silent killer'

Health practitioners are warning people to stay away from wild mushrooms.