Oil
Shell to cut spending, sell assets after profit warning
LONDON – Anglo-Dutch oil company Royal Dutch Shell plans to sell assets, cut spending and freeze a controversial Arctic drilling program to improve returns after a major profit warning.
Just a month into his new job as chief executive of the world’s No.3 investor-owned oil company, Ben van Beurden set out plans to make the group much leaner.
The planned changes follow a profit warning for the quarter to the end of December, detailing across-the-board problems that partly reflect how the industry is grappling with flat oil prices, the need to control costs and replace oil reserves that are being used up in production.
“Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance,” van Beurden said in a statement.
Other big oil companies are also struggling for profit growth. Shell’s warning, two weeks after van Beurden replaced former boss Peter Voser, followed one earlier in January by Chevron Corp (CVX.N), the second-largest U.S. oil company.
Shell’s capital spending will fall to $37 billion this year from $46 billion in 2013, it said, while it will also increase its rate of asset disposals, with a target to sell $15 billion worth of assets in 2014-15.
The company said it would also take tough decisions on projects, cancelling this year’s planned controversial and costly hunt for oil in Alaska’s Arctic seas, in a U-turn of plans made as recently as December.
To sweeten investors, it plans to raise its first quarter dividend by 4 percent compared with the same period last year to $0.47 per share, in a move which it said reflected confidence in its ability to boost free cash flow.
Shares in Shell gained 2.2 percent to 2,173 pence, making it one of the top risers on Britain’s bluechip index .FTSE.
“This is a good start, they’re saying the right things, more loudly and more quantified than we had expected,” Royal Bank of Canada analyst Peter Hutton said, adding that the increase in the dividend was “confident” and ahead of his expectations.
Shell had spent around $4.5 billion searching for oil off the coast of Alaska since 2005 but was forced to cancel last year’s Arctic offshore drill season after the grounding of a drillship in a storm in 2012 and against a backdrop of significant environmental opposition.
“We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency”, van Beurden said.
The $15 billion of disposals targeted for this year and next would be equivalent to around 6.5 percent of Shell’s current $228 billion market capitalization and compared to proceeds from divestments of $1.7 billion in 2013.
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RBC’s Hutton said that on a return on average capital employed basis, Shell was in line with its peers at about 11 to 12 percent. But the company had more opportunity than others to improve that metric, he added, given that a high proportion of its capital was employed in projects yet to come onstream or in U.S. shale gas.
Weak gas prices in the U.S. prompted Shell to say that it was considering asset sales in its U.S. shale business and it warned that impairment charges were possible.
The company is currently valued below its peers, with a forward looking price to earnings ratio of 9.8 times, compared with its European peers which are on 11.6 times.
Van Beurden also said Shell would abandon its previously-set cash flow and spending targets. The company had set a cash flow target of achieving between $175 billion to $200 billion between 2012 and 2015, at an oil price of between $80 to $100.
Shell had also pledged a four-year net investment spend of $130 billion for 2012 to 2015, based on a $100 oil price scenario.
Fourth-quarter earnings, excluding identified items and on a current cost of supply basis, came in at $2.9 billion, in line with a downgraded profit expectation it gave on January 17, and making the quarter its least profitable for five years.
Shell blamed the fourth quarter profit warning on weak refining profit margins, higher production costs, output stoppages in Nigeria and maintenance in its LNG business. The company had also undershot analysts’ forecasts in the third quarter of 2013.
The step-up in disposals had been flagged by Shell last October, although no target was given, and the company has already begun the process, raising $2.14 billion from selling stakes in projects in Australia and Brazil.
Van Beurden is due to give more detail on his strategy for the company at a management day on March 13.
U.S. oil firms Exxon Mobil Corp (XOM.N), the world’s largest publicly-traded oil company, and ConocoPhillips (COP.N) are both due to report fourth-quarter earnings later on Thursday.
– REUTERS
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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