AMSTERDAM (AP) — 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."
Van Beurden took the helm
from outgoing CEO Peter Voser on Jan. 1 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 Thursday, 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 percent 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.
Shell
purchased nearly $7 billion worth of shale assets in the U.S. 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 percent 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 percent 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 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.
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