Feeling the pinch of the sharp crude oil price drop,energy giant Royal Dutch Shell said on January 29 that it plans to cut spending by $15 billion.
The price of Brent crude, an international variety of oil, dropped about 50% in 2014. Some other energy companies also question the viability of projects across the industry, cutting exploration and production budgets and halting projects. Oil giant BP, which announces its earnings next week, announced 300 job cuts earlier in January while producers in the United States are slashing the number of drilling rigs around the country.
Shell said fourth quarter net income fell 57% to $773 million due to the steep decline inoil prices. Not counting the impact of changes in the oil price on inventory, Europe’s largest oil company by market value said its quarterly earnings rose 93% to $4.2 billion.
Chief Executive Officer Ben van Beurden said efforts to balance growth and returns had positioned the company to handle the decline in oil prices. While lower oil prices and last year’s divestments are likely to reduce cash flow in 2015, the company must be careful not to “over-react”.
“We plan to cap our organic 2015 spending at 2014 levels,” he said in a statement. Shell will remain open to opportunities in investment, but could also “further reduce spending should market conditions warrant that step”.
After reviewing its plans, Shell deferred some projects and canceled others. Among the plans it dropped were a petrochemical plant in Qatar and a liquefiednatural gasproject called Arrow in Australia. The company, which employs 90,000 people in 70 countries, said the cost of the plant in Qatar was not commercially feasible in the current economic climate.
Though Shell is cutting capital spending, the Netherlands-based company is still intent on drilling for oil in Alaska, van Beurden said, adding that Shell hoped to drill this summer in the Chukchi Sea, if the company receives the necessary permits and overcomes legal challenges.
Shell, which sold $2.2 billion in exploration and production assets in the fourth quarter as it trimmed positions in shale gas in the US, said a strategic review of its global portfolio was now underway. That could lead to further divestments and write-offs.
http://www.neurope.eu/article/shell-cuts-spending-pursues-arctic