OIL major Shell effectively put a “for sale” sign over some of its ageing North Sea assets today after a string of production breakdowns last year and as it seeks to rein in global growth ambitions.
Ben van Beurden, who took the helm of the energy giant ten weeks ago, said in a strategy presentation to financial markets: “We have to be honest with ourselves. The North Sea has disappointed for Shell in 2013. We are looking carefully at cases of unplanned downtime [of rigs].”
Shell’s North Sea production fell 22 per cent – or 26,000 barrels per day – last year. Van Beurden said “some of this was natural decline in an ageing province ... some of this, about 15,000 [barrels] per day was due to high levels of maintenance downtime, including unplanned downtime”.
Simon Henry, the oil giant’s chief financial officer, said the group had some “excellent” energy projects west of Shetland, such as the Schiehallion and Clair fields.
But he said that the North Sea represented “valuable production, but high-cost production”.
He added that it was important for Shell to decide which more mature assets in the province “justify ongoing investment” and those that might be more valuable to other owners.
The North Sea comments – against the backdrop of the continuing Scottish independence debate – came as Van Beurden said the company faced global “hard choices” as it said it would scrutinise potential oil and gas exploration projects more rigorously for their financial returns and “resistance” to political volatility.
Henry told financial markets that Shell lost nearly $1 billion (£600 million) through theft and disruptions to its Nigerian oil and liquefied natural gas operations (LNG) in 2013. He said that rampant oil theft was estimated to be costing the country’s government up to a billion dollars every month.
Analysts say Nigeria is important for Shell as the country provides almost 10 per cent of the company’s output. The group is selling some onshore Nigerian oil blocks, but is continuing to invest in gas and deepwater projects.
Van Beurden said the company was monitoring the situation in Ukraine, where it has a business, but so far there had been nothing affecting the security of its staff.
Van Beurden said Shell was “reducing our growth aspirations” and adopting a “granular” approach in assessing projects and performance of its existing operations, including creating 150 “performance units”.
A priority, he added, was to improve the performance of the group’s exploration and production business in America and its “downstream” division – refining, minerals and marketing.
Shell said it was to cut spending in its American upstream business by a fifth and could sell more of its shale assets. “Financial performance there is frankly not acceptable… some of our exploration bets have simply not worked out,” said Van Beurden, who was head of refining before taking over Shell’s top job from Peter Voser.
Shell’s annual report out today showed that Voser’s pay halved to $11.24 million last year following what the company called a disappointing performance.
Henry’s pay package fell to $5.89m from $11.65m. Shell said it had trimmed the base salary of Van Beurden to €1.4m (£1.2m) compared to Voser’s €1.6m to reflect shareholder sentiment.