Oil major Shell today said the oil price downturn could last for several years, as it revealed 6500 expected staff and contractor reductions in 2015, as well as further capital and operational spending cuts.
“Operating costs are expected to fall by over $4 billion, or around 10%, in 2015,” said Shell, as part of the firm’s “sustainable cost reduction program.” Costs will fall further in 2016 it says.
2015 capital investment is expected to be around $30 billion, down $3 billion from Shell’s last estimate in April, and down $7 billion, or 20%, compared to 2014 levels and 35% compared to 2013, as projects are either cut, reduced or re-phased, said Shell.
Shell said the company’s “planning assumptions reflect today’s market realities.” “The company has to be resilient in today’s oil price environment, even though we see the potential for a return to a $70-$90 oil price band in the medium term,” it said.
The firm expects to make further savings from its BG Group acquisition, which it said was on track. Synergies from the transaction should be at least $2.5 billion per year from 2018, said Shell. The firm also expects $30 billion of asset sales between 2016 and 2018, as the combined portfolios are restructured.
Shell’s CEO Ben van Beurden (pictured) says: “We’re successfully reducing our capital spending and operating costs, and delivering a competitive performance in today’s oil market downturn.
“We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery. We’re taking a prudent approach, pulling on powerful financial levers to manage through this downturn, always making sure we have the capacity to pay attractive dividends for shareholders.
“At the same time, we are making good progress with the recommended combination with BG. We will re-shape the company once this transaction is complete. This will include reduced exploration spend, a fresh look at capital allocation in longer term plays, and asset sales spanning upstream and downstream.
“These are challenging times for the industry, and we are responding with urgency and determination, but also with a great sense of excitement for the future.”
Prior to the BG combination, asset sales should total $20 billion for 2014 and 2015 combined, despite weak market conditions, Shell said, adding it would, at the same time, continue to invest in significant new projects.
Royal Dutch Shell’s second quarter 2015 earnings, on a current cost of supplies (CCS) basis, were US$3.4 billion compared with $5.1 billion for the same quarter a year ago.
Compared with the second quarter 2014, CCS earnings excluding identified items benefited from strong downstream results. In Upstream, earnings were impacted by the decline in oil and gas prices and decreased production volumes, partly offset by lower costs and depreciation.
2Q 2015 production was 2.7 MMboe/d compared with 3 MMboe/d a year ago. Liquids production decreased by 4% and natural gas production decreased by 18% compared with 2Q 2014.
Hess
Meanwhile Hess yesterday said its Q2 2015 oil and gas production increased to 391,000 boe/d compared to 319,000 boe/d in 2Q 2014. Hess posted a net loss of $567 million compared to net income of $931 million in 2Q 2014. Net production from the Gulf of Mexico was up compared to the prior-year quarter with higher volumes from Tubular Bells, which totaled 23,000 boe/d in 2Q 2015, being partially offset by lower production from the Conger and Llano Fields.
At the Corporation’s non-operated Sicily exploration prospect in the Keathley Canyon area (Hess 25%), the operator successfully completed drilling and logging activities in 2Q. The well was drilled to 30,214ft deep and is being evaluated. The drilling of an appraisal well to further evaluate the discovery is expected late this year or in early 2016.
Offshore Guyana, on the Stabroek Block (Hess 30%), the operator announced a significant oil discovery at the Liza #1 well and is now in the process of evaluating the resource potential on the block. The operator recently commenced the acquisition of 17,000sq km of 3D seismic.
TGS
TGS reported $140 million revenues in 2Q 2015, down from $205 million in 2Q 2014.
But, the firm said that, despite the industry's market challenges and uncertain outlook, it had a backlog of $242 million and a cash balance of $176 million.
"Demand for seismic data continues to be under pressure and the outlook for improvement in the market remains quite uncertain. Despite this uncertainty, TGS continues to be uniquely positioned within our industry with a strong balance sheet combined with a flexible asset-light business model," TGS CEO Robert Hobbs stated.
TGS said it now expects that 2015 multi-client investments will be approximately $490 million, up from the previously guided $420 million. "This increase in counter-cyclical investment is driven by prepayments associated with the acquisition of the Polarcus data library and a slight acceleration of the Gigante Mexico project," said TGS.
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