Oil crisis: Shell axes global projects worth £10bn

Despite announcing increased profits of £2.8bn yesterday, Ben van Beurden is overseeing a cut in investment. Picture: Newscast

The cut in global spending, to be spread over three years, comes after the dramatic slump in recent months in the price of oil, which has fallen to around the $50 a barrel mark.

Despite the drop in prices, Shell said profits for the last three months of 2014 had risen to $4.2 billion (£2.8bn) compared with 2.2bn (£1.5bn) in the same period a year earlier.

About 40 future projects are being axed or deferred by Shell as a result of yesterday’s funding announcement.

Chief executive Ben van Beurden said: “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.”

The firm announced 250 redundancies at its Aberdeen HQ last summer, well before other firms went down the route.

A spokesman would not say how much North Sea spending – if at all – would be affected by the investment freeze.

But Jake Molloy, Aberdeen-based organiser of the RMT union which covers the oil and gas industry, said: “It’s a global corporation and the UK competes with the rest of the world for investment and funding from the Hague and it’s going to be difficult.

“The North Sea is not the best place to be investing just now. It’s inevitable there’s going to be a knock-on for the UK, but what shape that will take at this stage is probably too early to say.”

He added: “It’s more depressing stuff on top of depressing stuff and it’s disappointing because the oil price will recover, it’s just a question of time and there’s still anywhere between 15 and 30 billion barrels out there.”

•BP to axe 300 jobs as oil price concerns grow

He said the UK government must “get its act into gear” and cut tax rates to encourage more investment. “Taxing every dollar at 60 to 80 cents is not an attractive proposition for investors – simple as that. They’re looking for a return on their buck.”

Labour energy spokesman Lewis MacDonald added: “This is bad news because Shell are probably one of the big three in terms of North Sea investment over the years and such a radical reduction in their worldwide investment plans are bound to impact on this province.”

He said future exploration was a “particular problem” in the North Sea, where productions levels have fallen in recent years.

“Even before the oil price fall we had two years of very low exploration levels and that has consequences into the future,” Mr MacDonald said. “If we’re not exploring, we’re not discovering, and if we’re not discovering, we’re not producing.”

•Carney: Scotland will take hit on oil price slump

A spokesman for Shell said yesterday it would still press ahead with its investment in the Clair and Schiehallion (West of Shetland) fields, which are operated by BP.

The global oil slump has sparked a series of announcements of job losses in the North East. BP posted 300 North Sea job losses earlier this month, followed by global giant Schlumberger, which axed about 100 jobs a week later.

Although the tumbling oil price is good news for motorists who are enjoying low petrol prices at the pumps, it means one of Scotland’s most important industries is struggling.

The oil and gas industry is worth £35bn annually to the UK economy, but a recent Scottish Parliament report suggested the current crisis could see 15,000 jobs axed of the 200,000 posts based north of the Border.

Oil prices have slumped to below $50 a barrel in recent months – less than half its value in the summer. Prices could continue to fall to $31 a barrel by the end of March as global supply outstrips demand, analysts at Bank of America Merrill Lynch warned earlier this month.

The UK government has already commissioned a major report by oil industry magnate Sir Ian Wood on measures needed to maximise recovery of the remaining North Sea reserves.

Shell also announced yesterday that it was reviving plans to drill for oil in the Arctic, prompting an angry reaction from Green campaigners.

Mr van Beurden said the need for new sources of oil is behind its decision to resume Arctic drilling. The firm has already spent $1bn on preparing its drilling work in Alaska’s Chukchi Sea, adding that it cost hundreds of millions of dollars a year to keep existing operations ticking over.

Mr van Beurden said operating permits and getting further facilities in place would be among the issues to be resolved before drilling could take place, but work could begin in the summer.

“We will only do this if we feel that we can do it responsibly,” Mr van Beurden said. “I think that we are as well prepared as any company can be to mitigate the risks.” He pointed out there are already other energy companies operating in the Arctic.

Mr van Beurden said the world needs new sources of oil and gas to meet demand and the Arctic offered potentially the biggest resource base ever found. There are an estimated 24 billion barrels in Alaska.

But environmental campaigners last night warned that a spill in the Arctic could be “catastrophic”.

Greenpeace’s Charlie Kronick said: “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.”

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