Super major Shell is curtailing its spending by more than US$15 billion over the next three years and has futher options to reduce spending, the supermajor announced this morning, citing the dramatic, nearly 60% drop in oil prices over the past six months.
Despite posting a profit, on a current cost of supplies basis (CCS), Shell's results - the first 2014 full year results announced by a supermajor - missed industry expectations, sending shares down 4% this morning. But, the results do not fully reflect the >50% drop in oil prices seen between in the last six months.
Q4 2014 CCS earnings excluding identified items were US$3.3 billion, compared with $2.9 billion for the fourth quarter 2013, an increase of 12%. Full year 2014 CCS earnings excluding identified items were $22.6 billion, compared with $19.5 billion in 2013. Full year net income, however, was down 10% at $14.9 billion.
Shell’s CEO Ben van Beurden (pictured) said spending on about 40 projects will be reviewed but added that the firm would be careful not to over-react to low oil prices, "keeping our best opportunities on the table."
“We are stepping up our drive for stronger capital efficiency, whilst being careful not to over-react to the recent fall in oil prices," he said.
“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.”
The spending curtailment would be achieved through: "Deferring spending in many areas, without compromising on HSSE, exiting selective growth positions, and driving costs down in the supply chain."
Shell said 2015 should see further ramp-up from the new fields brought on line in 2014, and that the next wave of significant start-ups would be in the 2016-18 timeframe.
Full year 2014 oil and gas production was 3.08 MMboe/d, a decrease of 4% compared with 2013. At the end of 2014, total proved reserves were expected to be around 13.1 billion boe, after taking into account 2014 production. The 3-year average headline proved Reserves Replacement Ratio was expected to be around 67%.