Shell Pledges Spending Cuts, Asset Sales to Restore Profit

Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden promised to slash capital spending and accelerate asset sales to revive earnings at Europe’s largest oil producer.

Shell, which made its first profit warning in a decade this month, dropped targets for cash flow, postponed plans to drill off Alaska and pledged to restructure its shale operations in North America, it said today in a statement. The Hague-based company also raised its dividend.

“2014 will be the year we implement some changes as we moderate our spending and growth plans, increase our divestments and restructure some parts of the company,” van Beurden said in London today. “We want to generate attractive returns for shareholders and this means returns at a project level.”

Van Beurden, who took over from Peter Voser at the start of the year, is trying to win investor confidence after the company’s fourth-quarter profit fell to the lowest since 2009. Unprofitable shale investments in North America, weak margins from oil refining worldwide and dud exploration wells all cut earnings as the rising cost of developing fields saw total capital spending reach a record $46 billion last year.

“The focus has to be on capital efficiency, capital discipline -- hopefully they can deliver it,” said Jason Kenney, an analyst at Banco Santander SA in Edinburgh. “Shell’s loss-making Americas and oil-product divisions with a combined about $80 billion capital employed, really do need attention.”

Stagnant Oil

The combination of rising costs and stagnant oil prices has curbed profits throughout the oil industry. Chevron Corp. and BG Group Plc have also warned investors fourth-quarter profits would be lower than expected.

Exxon Mobil Corp., the biggest U.S. oil company, today reported a 16 percent drop in earnings in the fourth quarter, the biggest decline in four years, on lower output.

Shell had planned to invest $130 billion and generate $200 billion in cash flow in the period 2012 to 2015. It will reduce spending including acquisitions by 20 percent to $37 billion this year, the company said today.

“Restructuring and improving profitability in North America” resource plays and oil products “worldwide, is a particular focus for the company,” Shell said in the statement.

Profit Drops

The Anglo-Dutch company today said profit excluding one-time items and inventory changes plunged 48 percent from a year earlier to $2.9 billion in the fourth quarter on exploration expenses and lower production. That matched the drop Shell forecast on Jan. 17 also because of losses in the Americas, lower refining margins and production disruptions in Nigeria and elsewhere.

Oil and gas production fell about 5 percent to 3.25 million barrels a day, it said. Shell also took a $631 million exploration charge in the fourth quarter.

Shell expects the end of a project in the United Arab Emirates, caps on Dutch gas output and field disruptions will cut first-quarter production by about 8.5 percent from a year earlier, according to Chief Financial Officer Simon Henry.

Shell will increase the first-quarter dividend payout by 4 percent to 47 cents a share, it said today.

The shares rose 1 percent to 2,147.5 pence in London.

The company has agreed to sell holdings valued at about $2.1 billion in Australia and Brazil. It’s seeking buyers for interests in oil and gas fields, in pipeline, fuel-refining and marketing assets from the U.S. to Nigeria. It may also exit its investment in Woodside Petroleum Ltd. worth about $6.3 billion.

“Shell has received indications of interest to acquire its refining and parts of its marketing portfolio” in Australia, it said today. The company “is also considering the sale of certain of its marketing assets in Norway and Italy.”

It sold about $300 million in assets including liquids-rich shale holdings in Ohio in the fourth quarter. Shell secured new exploration acreage in Greenland and Tunisia in the period.

Before it's here, it's on the Bloomberg Terminal.