Tara Patel Paris
SHELL is to cut $15 billion (R173bn) of investment over the next three years as the crash in oil prices saw fourth-quarter profit miss forecasts.
Shell, the first of the world’s largest oil companies to report earnings following the slump in crude to a five-year low, would review spending on about 40 projects worldwide, chief executive Ben van Beurden said yesterday.
“We see pressure on our investment programme,” Van Beurden said. “It’s a game of being prudent, but at the same time not overreacting.”
Profit – excluding one-time items and inventory changes – was $3.3 billion in the quarter, up from $2.9bn a year earlier, Shell said yesterday. That missed the $4.1 billion average of 13 analyst estimates.
Shell shares dropped as much as 4.4 percent in London and traded at £20.67 (R362.41) yesterday morning.
The global industry is scurrying to respond as oil below $50 a barrel guts cash flows. Statoil, Tullow Oil and Premier Oil have delayed projects or cut exploration spending. BP has frozen wages and Chevron delayed its 2015 drilling budget. By cutting spending, companies aim to protect returns to investors.
Shell, based in The Hague, will pay an unchanged quarterly dividend of 47c a share.
The payout is an “iconic item at Shell, I will do everything to protect it”, the chief executive said. In addition to the $15bn of cuts in planned spending over three years, Shell warned there could be more to come, should crude prices remain relatively low.
Fourth-quarter oil and natural-gas production fell 1 percent to 3.213 million barrels of oil a day due to loss of a licence in Abu Dhabi and security issues in Nigeria.
A fall in earnings from the upstream part of the business, pumping oil and gas, was offset by better results in refining and chemicals.
Shell, which was forced to issue a profit warning a year ago, is expected to be the only large oil company to report a gain in fourth-quarter profit.
Exxon Mobil, the world’s largest oil company by market value, is to report earnings on Monday.
Shell accelerated asset sales and cut spending even before the slump in oil prices. The Anglo-Dutch company axed a $6.5bn petrochemicals plant in Qatar this month and said it was selling a stake in an oil-producing project offshore Brazil amid declining output and higher costs to extract the crude.
A year ago, when oil prices were above $100, Van Beurden pledged to make “hard choices” on new projects, sell $15bn in assets over 2014/15 and slow investment growth.
More than 30 000 dismissals have been announced across the oil industry as companies shrink budgets. Exploration and production spending will fall by more than $116bn, or 17 percent, on weaker oil revenues, according to an estimate from Cowen & Co.
Of the 36 analysts that cover Shell, 20 recommend buying the stock, 14 have hold ratings and two advise selling. – Bloomberg