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Shell boss admits oil giant must 'sharpen up' as profits decline Shell halts Arctic drilling as new chief unveils overhaul
(about 3 hours later)
The new chief executive of oil giant Shell has admitted that the company needs to “sharpen up” as the firm reported a 48 oer cent decline in profits. Shell boss Ben van Beurden declared that 2014 would be a year of “changing emphasis” as he unveiled a 71 per cent dive in fourth-quarter profits, a new approach to business and suspended its controversial Arctic drilling programme.
Ben van Beurden, who took the helm on 1 January, highlighted lost momentum in Shell's delivery but said its overall strategy was robust. Van Beurden, who shocked the market this month with Shell’s first profits warning in 10 years, admitted today that the oil giant could "sharpen up in a number of areas".
He plans to cut the company's spending - resulting in some "hard choices on new projects" - to focus on improving returns. Investors were cheered by his pledge to act, and the shares rose by 63p, or 2.81 per cent, to 2305.5p.
His comments were made alongside annual results which confirmed the company's warning earlier this month about a poor final quarter of the year. Unveiling his first set of results since taking the job at the start of the year, van Beurden vowed to set an “agenda for sharper performance and rigorous capital discipline”, beginning with the suspension of drilling for oil in Alaska’s Arctic seas.
Profits for the three-month period slumped to $2.9 billion (£1.75 billion) from $5.6 billion (£3.4 billion) a year earlier, with the full-year figure down 23 per cent to $19.5 billion (£11.8 billion). "We must improve our financial results, achieve better capital efficiency and continue to strengthen our operational performance and project deliver," said van Beurden.
Shell will reduce capital spending from $46 billion (£27.8 billion) last year to around $37 billion (£22.4 billion) and will halt exploration activities in offshore Alaska as a result of opposition from a US court. "2014 will be the year where we are changing emphasis, to improve our returns and cash flow performance."
The worsening security situation in Nigeria, where the company has a long-term presence, weak refining margins and low natural gas prices in North America have increased the pressure on Shell's performance. The change in emphasis will see Shell selling up to $15 billion (£9 billion) of assets over the next two years to raise cash; cutting investment by a fifth, from $46 billion to around $37 billion in 2014; and improving efficiency by merging recent acquisitions into the main business as well as “restructuring in some areas of the company”.
Mr 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 indicated that further disposals in North America could be on the cards. Shell’s decision to halt drilling in Alaska comes after a federal court ruling last week that the US government improperly relied on “inadequate information” in awarding licences for exploration there, which Shell said “raises substantial obstacles to Shell’s plans”.
The Dutch national rose through the ranks over three decades before securing the top post, beating competition from internal and external candidates. Shell said fourth-quarter profits fell to $2.1 billion, from $7.3 billion a year earlier, as it took a net charge of $763 million for the period. Some $687 million of the charge related to write-downs on its US shale gas business, which has been hit by falling prices, as well as its Alaskan drilling campaign.
He said the company will step up the pace of asset sales to around $15 billion (£9.1 billion) in the next year in both exploration and downstream. Shell’s fourth-quarter profits on its "upstream" oil and gas production business tumbled by 70 per cent, amid continuing disruption in Nigeria.
Mr van Beurden said: "We are making hard choices in our worldwide portfolio to improve Shell's capital efficiency." Meanwhile, the company’s “downstream” chemicals and refining operation saw profits drop by 57 per cent.
Additional reporting agencies