Earnings up as Shell reshapes itself to switch to gas

Shell, reporting improved fourth-quarter earnings, is staying cagey on its regional strategy amid a restructuring.

Ben Van Beurden, the chief executive of Royal Dutch Shell, said the oil major was on track to complete its overall US$30 billion divestment programme as planned. Chris Ratcliffe / Bloomberg

Royal Dutch Shell on Thursday reported improving earnings for the fourth quarter of last year and said it had made significant progress on its US$30 billion asset sale programme, but would not be drawn on whether it is considering a further scale-back in the region.

The Anglo-Dutch oil major said net earnings attributable to shareholders, after adjusting for inventory price changes and a one-off tax, were up 14 per cent in the last three months of the year, at about $1.8bn.

For the full year, earnings were down 37 per cent at $7.2bn last year, versus $11.4bn in 2015.

The company has been preoccupied since early last year with the process of integrating BG, which it acquired for a little over $50bn, as it refocuses its assets more towards natural gas and gets out of businesses that do not meet its new return-on-capital targets or strategic plan.

“We are reshaping Shell,” said Ben van Beurden, the Shell chief executive, in announcing the results.

“We are gaining momentum on divestments, with some $15bn completed in 2016, announced, or in progress, and we are on track to complete our overall $30bn divestment programme as planned,” which is by the end of next year, he said.

Shell has faced questions over its commitment to the region, having pulled out of the $10bn Bab sour gas project in Abu Dhabi last year, and declining to pursue a stake in the emirate’s onshore Adco concession.

Last month, Shell said Sabic would buy its 50 per cent stake in the Sadaf chemicals joint venture for $820 million.

“The company is sending mixed signals about its desired role in the region,” Arab Petroleum Investments Corp (Apicorp), a Dammam-based investment bank backed by regional governments, said in a report last month.

“Shell is looking to sell its stakes in Majnoon and West Qurna 1 [in Iraq] -- the company has a 45 per cent stake in Maj­noon’s 220,000 barrels per day field and around 15 per cent in the 450,000 bpd West Qurna 1,” Apicorp said.

A Shell spokesman declined to comment on the speculation about Iraq asset sales. The company cut back sharply on its workforce there last year and has struggled alongside other foreign companies there to get paid by the Baghdad government, which has faced severe fin­ancial strain because of lower oil prices and the costs of war.

However, Shell recently tapped Halliburton for a $210m drilling programme with the aim of nearly doubling Majnoon output to 400,000 bpd, and the Iraq government said that it is working on new contracts with better terms for foreign companies.

Shell has also signed a deal to study the South Azadegan and Yadavaran oilfields, and the Kish gasfield, in Iran. It also has a 34 per cent interest in Petroleum Development Oman, which produces about 600,000 barrels per day.

Shell plans to spend between $25bn and $30bn a year through to the end of the decade on “high-quality, resilient” projects, Mr van Beurden said. But the near-term focus is on getting its debt down, which ballooned after the BG acquisition to a gearing level of 28 per cent at the end of last year from 14 per cent the year before.

The asset sales have been across regions, including a stake in the Japanese refiner Showa Shell sold for $1.4bn, last week’s sale of $3.8bn of UK North Sea assets to Chrysaor, and a stake in Thailand’s Bangkot field for $900m.

In terms of investment focus, Shell’s outgoing chief financial officer, Simon Henry, told investors that the company would be “selectively accelerating” production at its US shale oil properties.

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