Royal Dutch Shell has said it will quit its 2014 plans for drilling offshore Alaska, cut capital spending, and increase the pace of assets sales, the oil major’s CEO Ben van Beurden (pictured) announced today.
Shell's U-turn on Alaskan drilling follows a profit warning last week and, earlier this week, a court judgment, which raised “substantial obstacles” to the company’s plans for drilling in the Chukchi Sea, offshore Alaska.
Over one partial objection, the US Court of Appeals for the Ninth Circuit ruled that selection by the Bureau of Ocean Energy Management, Regulation, and Enforcement of 1 billion bbl of oil as the benchmark for analyzing the environmental impact of oil and gas activity in the Chukchi Sea was “arbitrary and capricious.”
Read more: US court strikes down Chukchi Sea EIS
“As a result, Shell has decided to stop its exploration program for Alaska in 2014,” said van Beurden this morning. “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 added: “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”
Shell also said capital spending will be reduced. In 2013, this totaled US$46 billion, including $8 billion of acquisitions. In 2014, Shell expects total capital spending of around $37 billion, including $2 billion of previously announced acquisitions.
The newly appointed CEO also said Shell would increase the pace of asset sales, expected to be about $15 billion for 2014-15, combined in upstream and downstream.
“We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency,” van Beurden said.
Speaking last week, after announcing Shell’s profit warning, van Beurden said: “Our momentum slowed in 2013. We must improve our financial results, achieve better capital efficiency and continue to strengthen our operational performance and project delivery.”
Today, van Beurden, who became CEO of Shell on 1 January 2014, said the company’s strategy overall was sound.
But: “Our ambitious growth drive in recent years has yielded a step change in Shell’s portfolio and options, with more growth to come, 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 outlined Shell’s new priorities:
In a statement, Shell said: “The landscape the company had expected has changed. Factors such as the worsening security situation in Nigeria in 2013, and delays to non-operated projects in several other countries, have altered the outlook. Oil prices remain high globally, but North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure. Restructuring and improving profitability in North America Upstream resources plays, and oil products world-wide, is a particular focus for the company.With a changing operational landscape and the streamlining of Shell's portfolio, the company will no longer be updating against previous cash flow and net spending targets.”
“I want Shell to be measured on our competitive performance,” van Beurden said.
The company added: “Innovative large-scale projects, such as Pearl gas-to-liquids have been the main drivers behind Shell’s recent increase in cash flow, which reached over $87 billion in 2012-13 combined, an increase of 35% on 2010-11. Recent start-ups and Shell’s latest projects and acquisitions – dominated by liquefied natural gas, and deep-water oil in the Gulf of Mexico, Brazil and Malaysia – are expected to build on this growth in 2014.”
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