Royal Dutch Shell Plc is gearing up to sell about $15 billion of assets as Europe’s largest oil company accelerates disposals to offset the cost of projects from Australia to Canada.
Asset sales will allow Shell’s net capital investment, spending on projects adjusted for acquisitions and disposals, to fall from this year’s record $45 billion, Chief Executive Officer Peter Voser said in an interview. New projects coming on stream give room to sell oil and natural gas fields, he said.
The shares fell the most in two years on Oct. 31 when Shell said net spending would rise this year because of acquisitions and higher costs at projects. Voser, who steps down at the end of the year to be replaced by Ben van Beurden, said while investment in fields is vital to ensure sustained production growth, there’s room to mitigate spending through disposals.
“We are entering into a divestment phase like we had a few years ago,” Voser, 55, said at his company’s headquarters in The Hague. “The net capital spending is considerably going to come down in 2014. We know exactly what we are going to do. Ben will introduce to the market” new targets, he said.
While Voser didn’t put a figure on disposals, Shell needs to raise at least $15 billion over the next two years to meet its financial targets, according to data compiled by Bloomberg.
Capital spending at the biggest energy companies has come under increased scrutiny from the investment community as costs rise against a background of stagnant oil prices. France’s Total SA has outperformed its peers this year after CEO Christophe de Margerie said spending had peaked. Exxon Mobil Corp., the world’s largest oil company by market value and biggest spender, also said it expects investment to decline.
Tension with investors on the mix of spending and returns to shareholders will “always be there and that’s the right tension,” Voser said. “But it doesn’t mean we always give in. We slowed down in the late 1990s quite considerably and this actually was one of our biggest regrets strategically, because it took us 10 years to recover.”
Voser, a Swiss national and an economist by training, is retiring 31 years after first joining Shell. Since his appointment in 2009 he’s overseen the completion of some of Shell’s largest projects including the $19 billion Pearl gas-to-liquids plant in Qatar. Voser said his most important decision as CEO was deciding to go ahead with the Prelude project, a floating liquefied natural gas plant that will be the largest vessel ever built and produce gas off Australia.
Shell forecast net capital expenditure of as much as $130 billion in 2012-2015 and expects it so far to total about $75 billion by January. That leaves $55 billion over the next two years. Chief Financial Officer Simon Henry forecast investment in projects will probably remain near this year’s level of $36 billion over the next two years. If so, Shell will need to cover at least $15 billion through divestments.
“Given Shell’s size and scope, it’s almost inevitable that there will be some acquisitions over the period, so in order to hit their net target, disposals would have to be higher still,” Neill Morton, a London-based analyst at Investec Securities Ltd., said by phone. “If they choose to breach their target, they may send the wrong signal to the market.”
Shell is investing in projects from Brazil to China and plans to sell production assets in Nigeria, the U.S., and possibly some other regions, along with interests in refineries and retail, Henry said last month.
While Voser declined to elaborate on disposal candidates, the company will probably concentrate sales in oil and gas production rather than refining, he said.
“We are particularly rich on upstream options,” Voser said. “At the moment the pipeline which we have is richer than we can do.”
The stock declined 1.4 percent to 2,028.50 pence at the close in London. The shares have fallen 4.4 percent this year.
Shell’s share in the Libra field, Brazil’s biggest oil discovery, was partly responsible for this year’s net spending increase. The Petroleo Brasileiro SA-led group including Total, Cnooc Ltd. and China National Petroleum Corp., agreed to pay a total $6.9 billion signing bonus to win the 35-year project in deep waters of the Atlantic Ocean.
“Two major IOCs coming with deepwater skills, two major Chinese coming in” bringing access to the fastest-growing energy market, Voser said. “It’s actually a perfect model. There is a lot be gained here and that’s the model going forward” to work with national oil companies.
International oil companies control about 20 percent of the world’s petroleum resources, according to BP Plc. NOCs need access to technologies, which are being developed by companies such as Shell, which spends about $1 billion a year in research and development.
“This will be a partnership development, more and more focusing on NOCs and IOCs together,” Voser said.