Shell Crashes Investment By U.S.$15 Bn

Yemisi Izuora/Ijeoma Agusosi
Oil giant the Royal Dutch Shell Plc is reducing potential capital investment by over $15 billion in the next three years due to the declining crude oil prices.

The company has also recorded an eight per cent drop in yearly net profits and said it would accelerate spending cuts.

Profit after tax dropped to $15.05 billion in 2014 compared with the company’s performance one year earlier, slipping on plunging earnings in the fourth quarter as the cost of crude tumbled.

The company said in its full year 2014 update released yesterday, that 2015 organic capital investment would be lower than 2014 levels. “Shell is considering further reductions to capital spending should the evolving market outlook warrant that step, but is aiming to retain growth potential for the medium term”, it added.

The company stressed that it would continue to defer spending in many areas, without compromising on Health Safety Security and Environment (HSSE), exiting selective growth positions, and driving costs down in the supply chain.

Shell assured investors that it was taking a “prudent approach” amid a volatile time for the industry and said it is deferring spending in many areas without compromising on growth opportunities.

Shell’s Chief Executive Officer, Ben van Beurden, stated: “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.

“Given Shell’s rich portfolio funnel and today’s lower oil prices, investment levels are under severe pressure in the near term. Today’s lower prices are creating opportunities to reduce our own costs and to take costs out of the supply chain, where there is multi-billion dollar savings potential for Shell”.

Van Beurden disclosed that the company expected to see a further ramp-up from the new fields brought on line in 2014. “The company continues to invest in a competitive suite of new oil & gas fields and LNG, with the next wave of significant start-ups in the 2016-18 timeframe”.

He added: “The agenda we set out in early 2014 to balance growth and returns has positioned us well for the current oil market downturn. However, lower oil prices and the impact of our 2014 divestments will likely reduce this year’s cash flow.”

The company announced dividends of $12 billion in 2014 and repurchased $3.3 billion of shares. “We slowed our buyback programme at the end of 2014 to conserve cash, and near-term oil prices will dictate the buyback pace”, he added.

Shell’s fourth quarter 2014 earnings, on a current cost of supplies (CCS) basis, were $4.2 billion compared with $2.2 billion for the same quarter a year ago.

Full year 2014 CCS earnings were $19.0 billion compared with $16.7 billion in 2013.

Fourth quarter 2014 CCS earnings excluding identified items were $3.3 billion compared with $2.9 billion for the fourth quarter 2013, an increase of 12 per cent.

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