Shell Ditches Plan to Drill in Alaskan Arctic This Summer

Shell has announced plans to slash its exploration and development spending from $46bn (£27.8bn) to $37bn this year and has ditched plans to drill in the Alaskan Arctic this summer.

The cutbacks were unveiled by new chief executive, Ben van Beurden, who said they were part of a range of initiatives to make up for what he described as Shell's "loss of momentum".

Van Beurden, who took over from Peter Voser at the turn of the year confirmed that fourth-quarter profits – on a current cost of supply basis – had plunged by 71% to $2.1bn. Annual earnings almost halved to $16.7bn.

The company will increase the pace of overall asset sales, which are expected to be $15bn over the next financial year – both in the exploration and refining sides of the business. "We are making hard choices in our worldwide portfolio to improve Shell's capital efficiency", Van Beurden said.

"Our ambitious growth drive in recent years has yielded a step-change in Shell's portfolio and options, with more growth to come, but at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas," he added.

The decision to shelve drilling off Alaska this summer will delight environmentalists and is the latest setback for the Anglo Dutch oil giant in the far north.

It follows a US court ruling that the department of the interior had failed to consider all environmental impacts of the exploration in the Chukchi and Beaufort seas when it gave Shell permission to drill.

"This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014," Van Beurden said. "We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible."

Greenpeace Arctic oil campaigner Charlie Kronick said: "The company has spent huge amounts of time and money on a project that has delivered nothing apart from bad publicity and a reputation for incompetence. The only wise decision at this point is for Mr. Van Beurden to cut his company's losses and scrap any future plans to drill in the remote Arctic ocean.

"Shell's Arctic failure is being watched closely by other oil companies, who must now conclude that this region is too remote, too hostile and too iconic to be worth exploring."

Van Beurden will be under pressure to give a wider explanation of the company's plans and problems when he faces investors and media later on Thursday.

Meanwhile Shell said it had distributed more than $11bn to shareholders in dividends and repurchased $5bn of shares in 2013.

Reflecting confidence in the potential for free cash-flow growth in 2014, the company said it was expecting the first quarter of 2014 dividend to be $0.47 a share, an increase of over 4% compared with the same period of 2013, and total dividends announced in respect of 2014 to be potentially more than $11bn.

The basic financial results were known two weeks ago when the company issued a shock profit warning.

At the time the Anglo Dutch group blamed a whole host of issues, including higher exploration costs, security problems in Nigeria, a high dollar exchange rate as well as heavier than anticipated maintenance work on liquefied natural gas (LNG) plants.

City analysts did not to react strongly to the bad news believing it was largely part of a traditional "kitchen sinking" of all the bad news by an incoming chief executive.

But Nick Butler, a former energy adviser to No 10 and now a columnist with the FT, said this explanation was unlikely and yet he questioned what had changed so quickly since a benign third-quarter presentation on 31 October.

"Anything less (than a full and detailed explanation today) will reinforce the impression that there is a governance problem which has left top management and directors out of touch with the operations of the business," he wrote earlier this week.

Shell is traditionally seen as an extremely cautious company, although it had its own brush with scandal almost exactly 10 years ago when the company was accused of fiddling its reserve figures.

The company has already said it will make up to $15bn of divestments in an effort to concentrate on higher value assets. On Wednesday it announced its latest sale of a stake in a Brazilian field to Qatar for $1bn. Shell has also recently sold off $1bn interests in the Wheatstone LNG scheme in Australia, is reviewing some of its US shale gas holdings, and there is speculation that it is losing heart with its huge but trouble-hit Nigeria business.


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