Shell Cuts $15 Billion From Budget as Profit Misses Expectations

shell perdido spar
Shell’s Perdido spar, image (c) Royal Dutch Shell
By Tara Patel

(Bloomberg) — Royal Dutch Shell Plc will cut $15 billion of spending over the next three years as the crash in oil prices saw fourth-quarter profit miss expectations.

Shell, the first of the world’s largest oil companies to report earnings following the slump in crude to a five-year low, will review spending on about 40 projects worldwide, Chief Executive Officer Ben van Beurden said in an interview.

“We see pressure on our investment program,” van Beurden said on Bloomberg TV. “It’s game of being prudent but at the same time not overreacting.”

Profit excluding one-time items and inventory changes was $3.3 billion in the quarter, up from $2.9 billion a year earlier, Shell said today in a statement. That missed the $4.1 billion average of 13 analyst estimates compiled by Bloomberg.

Shell shares dropped as much as 4.4 percent in London and traded at 2,070.5 pence at 8:11 a.m.

The global industry is scurrying to respond as oil below $50 a barrel guts cash flows. Statoil ASA, Tullow Oil Plc and Premier Oil Plc have delayed projects or cut exploration spending. BP Plc has frozen wages and Chevron Corp. delayed its 2015 drilling budget. By cutting spending, companies aim to protect returns to investors.

Shell, based in The Hague, will pay a quarterly dividend of 47 cents a share, the same as the previous three months. It will pay the same in the first quarter.

The payout is an “iconic item at Shell, I will do everything to protect it,” the CEO said in the television interview.

More Cuts

In addition to the $15 billion of cuts in planned spending over three years, Shell warned there could be more to come should crude prices remain relatively low.

“Shell has options to further reduce spending but we are not over-reacting to current low oil prices,” it said. The drop in oil prices has put investment levels “under severe pressure in the near term.”

While declining to speculate about where crude prices are headed, he warned that canceling or delaying too many projects could risk putting in jeopardy supply over the longer term.

Shell’s like-for-like capital spending will be lower than last year, according to today’s statement. That number, which doesn’t include acquisitions, was $35 billion last year and $38 billion in 2013.

Fourth-quarter oil and natural-gas production fell 1 percent to 3.213 million barrels of oil a day due to loss of a license in Abu Dhabi and security issues in Nigeria.

Qatar Plant

Shell accelerated asset sales and cut spending even before the slump in oil prices. The Anglo-Dutch company axed a $6.5 billion petrochemicals plant in Qatar this month and said it’s selling a stake in an oil-producing project offshore Brazil amid declining output and higher costs to extract the crude.

Average Brent crude prices in the quarter fell 30 percent from a year before to $77 a barrel. This month the benchmark extended its decline, touching $45.19 a barrel on Jan. 15.

A year ago, when oil prices were above $100, Van Beurden pledged to make “hard choices” on new projects, sell $15 billion in assets over 2014-2015 and slow investment growth.

More than 30,000 dismissals have been announced across the oil industry as companies shrink budgets, according to a tally by Bloomberg News. Exploration and production spending will fall by more than $116 billion, or 17 percent, on weaker oil revenues, according to an estimate from Cowen & Co.

Of the 36 analysts that cover Shell, 20 recommend buying the stock, 14 have hold ratings and two advise selling.

The company will hold a web-cast on the fourth-quarter earnings at 2 p.m. London time.

–With assistance from Nidaa Bakhsh in London.

(c) 2015 Bloomberg.