ROYAL Dutch Shell has said it is still making money in the North Sea but indicated it will only invest the bare minimum outside the West of Shetland area amid current challenging market conditions.
After the Anglo Dutch giant unveiled an 80 per cent slump in annual profits, chief executive Ben van Beurden said it was too soon to say how the £35bn takeover of BG will impact on jobs in the North Sea.
However he highlighted the benefits of the cost cutting Shell has competed in an area where it has already cut 500 jobs in response to the crude price slump since June 2014.
“The North Sea is a basin under considerable stress at the moment. It’s of course old and mature and also the infrastructure is starting to get old.” Mr van Beurden told reporters.
He added: “There has been a very, very considerable effort, on our side also, to take out costs, do things differently and as a result of it we have managed to bring cash operating costs down very, very significantly over the last year. And basically our Central North Sea position, which is the most challenging part, is making money at the moment.”
Mr van Beurden said Shell can take advantage of the current market environment to squeeze more costs out. Services businesses have been under pressure to cut charges amid the downturn.
The comments may be welcomed in some quarters as a sign that the deep cost cuts made by many companies in the North Sea in response to the crude price slump have helped to stabilise the area. These have resulted in thousands of job losses.
But the remarks highlight the costs of operating mature fields in the Central North Sea off north east Scotland.
Shell did nothing to allay fears the takeover of BG will be followed by a big shake up of the North Sea business as the firm looks to focus investment on big growth projects.
These include the giant Clair and Schiellallion fields West of Shetland, which Shell’s chief financial officer Simon Henry said will account for the vast bulk of North Sea spending in coming years.
He noted: “Everywhere else, not just Shell, it’s basically down to care and maintenance activity and it’s probably likely to stay that way with the oil price and fiscal framework where it is.”
The company underlined that it expects to shed 2,800 jobs following the takeover of BG, with a focus on areas of duplication.
These are in addition to the 7,500 jobs Shell has shed since the crude price started tumbling.
Mr van Beurden said the completion of the BG transaction, expected this month, marks the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns.
“We are making substantial changes in the company, reorganising our Upstream, and reducing costs and capital investment, as we refocus Shell, and respond to lower oil prices,” he said.
But Shell’s results provided further proof of the toll the crude price fall has taken on the profitability of oil and gas firms.
Shell’s full year profits fell to $3.8bn from $19bn on the standard current cost of supplies basis. The company recorded $6.8bn one-off costs, net of gains.
Michael Hewson at CMC Markets noted the company had taken write downs in excess of $7bn on its operations in Alaska, Ukraine, and the Carmon Creek tar sands venture in Canada as it looked to dispose of non-core assets
Shell said the upstream exploration and production arm was impacted by the significant decline in oil and gas prices. The impact was only partly offset by the boost to refining earnings provided by the oil price fall.
Shell cut spending on new projects to $28.9bn from $37.3bn in 2014. It expects capital investment for Shell and BG combined to total $33bn this year, down 45 per cent from the peak recorded in 2013.
However, the company expects to maintain dividend payouts. It held the fourth quarter dividend at 47 cents per share.
Analysts at Barclays noted: “Shell is clearly not exempt from the squeeze in earnings and cash flow faced by the industry but with the acquired assets (with BG) it is likely to have more levers than most to pull through the downturn.”
On Tuesday BP revealed it lost $5.2bn in 2015.
Royal Dutch Shell A shares closed up six per cent, 87.5p, at 1525.5p.
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