Shell vows to sell $10bn extra assets as profits plunge 87%

Collapse in oil price hammers profits as BG takeover looms but CEO pledges not to conduct a fire sale or cut more jobs

Shell has promised to dispose of a further $10bn of assets this year but insisted it does “not intend to hold a fire sale”.

The sell-off commitment came as the Anglo-Dutch group reported an 87% collapse in annual profits to $1.9bn just as it completes its £35bn takeover of rival BG.

Ben van Beurden, the Shell chief executive, had previously said the group wanted $30bn of asset sales following the BG deal and he now expects a third to come in the next 12 months without losing out on price.

“We do not intend to hold a fire sale. We don’t have to,” Van Beurden insisted while saying a general slump in costs across the industry had meant that the business was now making money again in the central North Sea.

Shell reported that quarterly earnings fell by 58% to $939m although the underlying profit of $1.8bn was in line with expectations.

Shell has been hammered by a collapse in oil prices which has left the key North Sea Brent crude as low as $32 per barrel in recent days. On Tuesday, BP unveiled the worst annual loss in its history at $6.5bn while Conoco in the US has just cut its dividend.

The company’s share price closed up more than 6% at £15.26, as commodity companies rallied on the back of rising oil prices. It is still down more than 10% since the start of the year.

Van Beurden said he was committed to make “substantial changes” to cope with the lower cost of crude but has not increased the total number of job losses planned, with 7,500 gone and 2,800 still to come.

“The completion of the BG transaction, which we are expecting in a matter of weeks, marks the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns,” he said.

“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.”

The latest figures from Shell show quarterly oil and gas production down 5% and put quarterly cash flow from operating activities at $5.4bn with annual spending at $28.9bn, down 23% on the year before.

Over the last year Shell has ditched its controversial exploratory drilling operation in the Arctic and postponed or scrapped projects such as the LNG Bab gas field in Abu Dhabi and Canada LNG.

The company took a final investment decision on only four new projects last year and few are expected to be approved in 2016.

This strategy has started to drag down Shell’s reserve replacement ratio, a metric used to reflect new reserves added relative to the amount produced, down to 48%, even lower than BP.

Despite the dismal financial results, Van Beurden announced the 2015 annual dividend would be held at $1.88 and “is expected to be at least $1.88 per share in 2016”.

The Shell boss was reluctant to predict the direction of future oil prices but he expected them to start moving up from Thursday’s level of mid-$34 towards $50 over the next 12 to 18 months.

The BG merger still needs a low $60 oil price to make sense but the Shell boss said this was a long-term assessment and he remained confident the deal was advantageous to shareholders.

Asked at a briefing whether the company would urge British voters to reject Brexit in a referendum vote, Van Beurden said it was up to the public to decide but added: “It would be bad for the European Union. It would not be a good thing for Shell.”

Meanwhile, Greenpeace said the collapse of profits at oil companies was a result of making the wrong decisions on fossil fuels.

“Oil giants like Shell and BP are already paying a huge price for failing to bring their businesses into the 21st century,” said Greenpeace’s senior climate adviser Charlie Kronick.

“The more electric cars, solar panels, and better-insulated homes we have, the less fossil fuels we’re going to need and the less they’re going to be worth. Shell and BP have bet heavily on the wrong energy sources, and now they’re losing big.”

Contributor

Terry Macalister Energy editor

The GuardianTramp

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