Royal Dutch Shell plc plans to lay off staff in its U.S. exploration and production (E&P) arm and cut upstream Americas spending by 20% this year to right its capital spending with cash flow.
CEO Ben van Beurden took over on Jan. 1, and Thursday he offered a candid analysis about the state of Shell's portfolio. Financial performance "is frankly not acceptable...Some of our exploration bets have simply not worked out," he said during a management meeting with analysts. Van Beurden had run the refining business before being promoted.
The comments echo statements he already made this year, faulting underperformance in endeavors that are draining cash with no payoff in sight (see Daily GPI, Jan. 17; Jan. 30).
On the spending list for North America this year:
Deepwater Gulf of Mexico;
Permian Basin of Texas;
Duvernay Shale in British Columbia;
Canada oilsands; and
California in situ operations.
Funding also is to continue for the proposed liquefied natural gas (LNG) export mega project for British Columbia, but Shell has well-heeled partners, and the project in any event won't come online for four to six years, the CEO said. Still in the queue is the perpetually delayed Alaska offshore drilling program, paused again this year. Shell in January suspended the summer drilling program (see Daily GPI, Jan. 17).
However, close to one-third (30%) of permanent U.S. staff and contractors are to be let go; there were no exact numbers on where the job cuts would be.
Underperforming North American assets on the "fix" or sales list are properties in Appalachia, Pinedale Anticline, Haynesville Shale and the Foothills of Canada. The company already is marketing close to 700,000 net acres of holdings in the Eagle Ford Shale, Mississippian Lime and the Rockies following a $2 billion-plus writedown in 2Q2013 (see Daily GPI, Oct. 15, 2013; Aug. 2, 2013).
"I don't think it is a matter of trying to reinvent the company in a fundamentally different way," van Beurden said. "It is a matter of tackling some of the issues that we know need tackling."
Shell is sticking to a 2014-2015 divestment target of $15 billion, of which $4.5 billion already has been announced. About $35 billion is earmarked for this year's capital expenditures.
The Big Oil majors overall have been less successful in capturing unconventional values like the independents. ExxonMobil has the largest North American gas operations, but it has been slowed by transitioning to higher-valued crude/liquids plays. BP plc is creating an entity for domestic assets that would operate separately, similar to ExxonMobil's XTO Energy Inc. (see Daily GPI, March 4). Chevron Corp. plans to concentrate on global integrated gas growth in the near-term and is putting its onshore assets aside for another day (see Daily GPI, March 11). Former major ConocoPhillips separated its upstream business from downstream to give it more focus.
Van Beurden reinforced his priorities, telling analysts the strategy is founded on "technological expertise, disciplined capital investment, integrated operations and large-scale." Investment in long-term opportunities is to be balanced with short-term delivery.
"Shell has a strong asset base and industry leadership in many of its growth themes. While this position of strength gives confidence for the future, it is also clear that we need to get a tighter grip on performance management in Shell. I am determined that, by focusing sharply on our three key priorities -- better financial performance, in particular in our upstream Americas and downstream businesses, enhanced capital efficiency, and continuing strong project delivery, we will continue to grow our cash flow and improve our returns."
Three distinct time horizons are the focus going forward: maintaining the existing cash "engines" businesses; delivering near-term cash flow from growth projects like deepwater and integrated gas; and identifying future opportunities overseas, where returns in 2013 were impacted by losses in North America and security issues in Nigeria.
"We are taking stock of our investment opportunities and operating positions," said van Beurden. "Are our assets attractive economically, and are they resilient to industry cycles? Are our plans credible, are they competitive and are they affordable?
"This approach is driving hard choices on today's asset base, new opportunities, and disposals plans, where we have recently announced exits from Australia and Italy downstream, Wheatstone LNG in Australia, and U.S. gas-to-liquids."
Project start-ups from 2010 onward have added $9 billion, or more than 20% to Shell's 2013 cash flow, he said. "We want to pick up the pace again both on cash flow and returns, driven by financial performance, capital efficiency and project delivery..."