Oil major says investment will be lower over the next three years to buffer against the 60pc fall in crude price
Petrol pumps are pictured at a Shell garage in central London
By Andrew Critchlow
Royal Dutch Shell is to slash investment by $15bn (£9.9bn) over the next three years but still intends to start drilling work in the Arctic if it gains US legal clearance despite envrionmental concerns and falling oil prices, the company said as it revealed weaker earnings.
The oil major made the announcement as it unveiled softer profits for the fourth quarter which fell to $3.26bn, down from $5.85bn in the previous quarter after exceptional items and asset sales.
Chief executive Ben van Beurden said that legal challenges to returning to the Arctic waters around Alaska would have to be cleared first but that the Anglo-Dutch company plans to invest around $1bn resuming its search for oil in the Chukchi Sea this year.
Shell was forced to suspend operations off the coast of Alaska after the Kulluk drilling rig ran aground in stormy weather. However, the company surprised the market last year when it submitted a new proposal to the Federal government to restart exploration activities offshore in the Alaskan Arctic.
The decision to press ahead once again with Arctic drilling has immediately provoked environmental campaigners.
Charlie Kronick, campaigner at Greenpeace said: “Despite announcing cuts Shell hasn’t taken the opportunity to cut its most high-cost high-risk project. Shell is taking a massive risk doggedly chasing oil in the Arctic, not just with shareholder value, but with the pristine Arctic environment. A spill there will be environmentally and financially catastrophic. It’s time for investors to recognise that it’s impossible for Shell to justify its continued pursuit of offshore Arctic oil.”
Elsewhere, Shell is reviewing its capital expenditure across its business and cutting back on new projects in line with the wider industry following a 60pc decline in the price of crude since June. This could see further streamlining by the company in high-cost areas such as the North Sea and Van Beurden said that he cannot guarantee that jobs in Aberdeen won't be lost this year.
He also urged the Chancellor George Osborne to slash tax rates on oil companies working in the North Sea in the next budget due in March.
More broadly, Shell said that it had posted an increase in full-year earnings based on current cost of supplies to $19bn, up from $16.7bn in the previous year. However, that failed to impress the market with the company's shares opening 3.8pc lower at 2164p in London.
Analysts at Liberum said that results were "disappointing" and 20pc below consensus forecasts "driven primarily by poor upstream results".
“The agenda we set out in early 2014 to balance growth and returns has positioned us well for the current oil market downturn. However, lower oil prices and the impact of our 2014 divestments will likely reduce this year’s cash flow.”
The company said that it had announced dividends of $12bn in 2014 and repurchased $3.3 bn of shares but slowed its buyback program at the end of the year to conserve cash and indicated that near-term oil prices will dictate the buyback pace going forward.
Van Beurden added: “We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices. Shell is taking structured decisions to balance growth and returns.”
Last week Shell said that it would not press ahead with a $6.5bn petrochemical project in Qatar in the first major scheme shelved by the company since oil prices started to plunge.
However, the company said that it is "considering further reductions to capital spending should the evolving market outlook warrant that step, but is aiming to retain growth potential for the medium term."
Van Beurden was also unable to update the market on the status of its bid to renew a giant oil deal in Abu Dhabi, which had expired, after rival Total said that it had signed a deal with the emirate.
"Let's wait a see what happens in the next few days," said Van Beurden.