Shell more than doubled its profits last year thanks to rising oil prices, but has admitted it faces a multibillion-dollar bill for several years to compensate householders affected by earthquakes linked to its gasfield in the Netherlands.
The quake bill warning came as Shell reported strong earnings of $15.8bn for 2017, up 119% on 2016, on a current cost of supplies basis, the measure most closely watched.
Analysts said the healthy results were evidence that the Anglo-Dutch firm’s £35bn takeover of gas giant BG Group in 2015 was paying off.
The effect of higher oil prices, which were on average $10 higher per barrel in 2017 than in 2016, had also been a major factor, Ben van Beurden, Shell’s chief executive, said.
The Dutch government said this week that an independent commission will rule on thousands of claims from people affected by tremors caused by a gasfield run by NAM, a joint venture owned 50-50 by Shell and ExxonMobil.
Van Beurden said: “We are talking about multibillion-dollar potential bill for years to come because these earthquake will continue to occur unfortunately. They are small earthquakes but nevertheless they will continue to cause some damage here and there.”
He said he had been “surprised” by recent suggestions that the firm would walk away from its responsibilities for Groningen, Europe’s largest natural gasfield. Extraction at the gasfield has now been capped by Dutch ministers due to seismic activity. An earthquake of magnitude 3.4 was measured in early January.
The company paid off $12bn of debt last year and is on track in 2018 to complete the last $6bn of its $30bn divestment programme launched after the BG deal, which involved selling oil sands operations and North Sea fields.
Van Beurden said he expected the oil price to rise. It now stands at $69 per barrel, buoyed by strong demand, restrained investment by oil firms and production curbs by oil cartel Opec. Goldman Sachs this week raised its six-month forecast for Brent crude to $82.50 per barrel, up from $62.
Jessica Uhl, who took over as chief financial officer last year, said Shell would not bust its annual $25bn-$30bn capital investment plan for coming years. “Even if prices continue to go up and we generate more cash, we’re not going to go above our $30bn ceiling.”
She said Shell’s shale oil production, which is largely in the US and Argentina, could “easily” double to 540,000 barrels equivalent per year in the next five to 10 years. Shell ruled out a return to drilling in the Arctic, which it abandoned in 2015, even with higher crude prices. “We are done in Alaska, we will not return to offshore Alaska,” said Van Beurden.
Shell defended the $1bn-$2bn annual budget it has committed to its new energies division, with Van Beurden saying it was “pretty modest” but “not a pittance”.
The firm bought and invested in two electric car infrastructure firms late last year, and made its first foray into the UK electricity and gas market by buying First Utility, the biggest energy supplier outside of the so-called big six.
Van Beurden said the acquisition, in the £200m-£300m range, was a “good deal” and was unfazed by the challenges facing energy firms, such as Theresa May’s price cap.
“Yes we understand the challenges in the UK power market, but they are challenges for the big six, not for people who take on the big six,” he said.
He said a significant proportion of the new energies budget in coming years would be spent on acquisitions and investments.