A Review of the Nigerian Energy Industry

Shell pledges sale of Nigerian assets, spending cuts to restore profit

Shell facility11 February 2014, Lagos – Royal Dutch Shell is seeking buyers for interests in oil and gas fields, as well as in pipeline, fuel-refining and marketing assets from the U.S. to Nigeria, the company said in a statement to Bloomberg.

The oil giant has also agreed to sell holdings valued at about $2.1 billion in Australia and Brazil and also plans to exit its investment in Woodside Petroleum Ltd. worth about $6.3 billion.

Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden was quoted by the newswire to have said that “2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance.”

The shell Chief 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 last 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 recently. “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.”

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

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

The Anglo-Dutch company also 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.


– This Day

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