Shell bundles up lossmakers to achieve turnround

March 18, 2014 5:35 pm
Shell bundles up lossmakers to achieve turnround
By Ed Crooks in New York
Royal Dutch Shell has reorganised its lossmaking American shale gas and oil operations into a single business in an attempt to turn around their performance, the company has said.

In a presentation in New York, the Anglo-Dutch oil group’s senior executives also warned of the possibility of further writedowns on the value of its shale assets if results fail to improve as it hopes. Its North American shale business lost about $3bn last year, the company said.
Shell has launched a drive to cut costs and expedite its decision-making in an attempt to match the nimbler independent companies that have led the US shale revolution.
For the past 14 months, it has been operating its “unconventional” shale oil and gas business in the US, Canada and South America as a single unit led by one of its executive vice-presidents.
It is also cutting the number of staff employed in shale in North America by 400 from 1800 last year, with many being redeployed to other parts of the group.
The reorganisation echoes ExxonMobil’s decision to retain its shale subsidiary XTO Energy, acquired in 2010, as a separate unit. BP also announced in January that it planned a similar separation for its US onshore business, which includes its shale assets.
However, those companies opted for separate locations for their shale operations, whereas Shell’s is still run from its US headquarters in Houston.
Ben van Beurden, Shell’s chief executive who took over at the start of the year, has been telling analysts and investors in London and New York that the company wanted to “sharpen up our performance in a number of areas”. Shell was forced to issue a profits warning in January after being hit by problems including rising costs for oil exploration and weak refining margins.
The US and Canadian shale operations are one of Shell’s biggest headaches. They have about $24bn of capital invested in them – more than a tenth of the group’s total – and their losses last year cancelled out the whole of the profit Shell made from US deep water in the Gulf of Mexico and the Canadian oil sands.
Other large international oil groups have also struggled in US shale, which has been dominated by small and midsized companies that have lower costs, better local knowledge and speedier decision-making.
Shell’s reorganisation is intended to bring its performance closer to that of its competitors.
Mr van Beurden said last week that the company would “fix or divest” its North American shale assets, and confirmed the planned sale of oil and gasfields in the Eagle Ford shale of south Texas, the Mississippi Lime of Kansas and in Colorado.
For the time being, it is retaining assets including oil and gasfields in the Marcellus Shale of Pennsylvania, the Permian basin of west Texas, and the Duvernay shale of western Canada.
As well as the reorganisation and job cuts, it is reducing the number of rigs and overall North America capital spending including acquisitions, which fell by 50 per cent last year, is being cut by a further 20 per cent this year.
Marvin Odum, Shell’s director of oil and gas production in the Americas, said the company was already talking to several potential buyers for the assets that were up for sale.
He added that the company had “some major decisions ahead of us” on its remaining assets, which could lead to further disposals and possible further writedowns.
Shell hopes that in the long term it can use the experience built up in North America to develop shale resources around the world, in Argentina, Russia, China and other countries.
However, Mr Odum said that the American shale operations were finding ways to cut costs by 30-40 per cent.
“Staying in that business is dependent on achieving this goal,” he said.