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Shell flags Q4 oil, gas output slip but sticks to spending guidance

London (Platts)--20 Jan 2016 807 am EST/1307 GMT


* Shares fall over 6% on profit estimate
* Confirms spending, cost cutting plans
* Shell sees 'flexibility' on 2016 capex budget


Shell said Wednesday its oil and gas production slipped by more than 6% year on year in the fourth quarter of 2015 as the impact of asset sales and outages more than offset new production from its upstream projects.

The Anglo-Dutch major also confirmed its guidance for cost cuts and spending plans this year but saw its share price fall sharply after flagging a 40% slide in adjusted earnings for the quarter.

Oil and gas output averaged 3 million b/d of oil equivalent during Q4, down from 3.21 million boe/d a year earlier, Shell said in a trading update.

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In October, Shell said it expected its Q4 upstream output to be reduced by about 120,000 boe/d as a result of divestments, the expiry of a Malaysian production contract, and storage issues at its Dutch gas fields.

Shell on Wednesday also estimated an adjusted net income of $1.6 billion-$1.9 billion for Q4 as the oil price slump continues to hit its bottom line.

The earnings estimate was down 40% on the year and 11% under consensus forecasts sending Shell's shares down by more than 6% in early London trading.

The earnings estimate was largely a result of lower-than-expected downstream results, according to equity analysts at Jefferies.

Shell, which had previously flagged lower refinery rates in Q4 due to higher maintenance activity, predicted adjusted downstream earnings of $1.4-1.6 billion for the period, almost 30% below the consensus forecasts.

Despite the weaker than expected earnings, Shell's CEO Ben van Beurden said in the trading update he was "pleased with Shell's operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness."

CAPEX 'FLEXIBILITY'

Shell, which hopes to close its $60 billion takeover of the UK's BG Group within weeks, confirmed plans for capital spending for the combined group of $33 billion, 45% lower than a peak for the combined group in 2013.

Van Beurden also said there is "flexibility" for further reductions to capex "should conditions warrant."

Shell said its operating costs had been cut by $4 billion, or about 10%, in 2015 and confirmed cuts of a further $3 billion are expected this year.

"Synergies from the BG combination will be in addition to that," van Beurden said in the statement. "Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue."

Shell reported one of its biggest ever quarterly losses for the third quarter of 2015 after booking a huge writedown to take stock of a lower oil price outlook and the impact of decisions to drop a number of major upstream projects.

The company booked a one-time upstream charge of $8.2 billion, more than half of which reflects moves to halt Alaskan drilling activities and shelve a large Canadian oil sands project this year.

Shell also took a further impairment charge of $3.7 billion to reflect a downward revision of long-term oil and gas price expectations, mainly on its US shale gas properties.

Last year Shell pushed back a decision to develop Iraq's Majnoon Field into 2017, ditched Carmon Creek oil sands, cut spending on shale projects in North America, and dropped two LNG projects and delayed two others.

Shell has said it is looking to approve new upstream oil and gas projects that will break even above $55/b as it looks to secure long-term returns in the lower oil price environment.

ASSET SALES

The company Wednesday said its own capital investment in 2015 is expected to be $29 billion, an $8 billion or over 20% reduction from 2014 levels. It said its asset sales for 2014 and 2015 now exceed $20 billion, well above the original plan of $15 billion set out in early 2014.

Van Beurden said preparations are well advanced for $30 billion of asset sales in 2016-18, assuming the successful completion of the combination with BG.

In a separate announcement, BG said its average production volumes for 2015 were 704,000 boe/d, higher than previous guidance of 680,000-700,000 boe/d.

In particular, the LNG shipping and marketing business delivered 282 cargoes (17.9 million mt), up 58% on 2014, owing mainly to the start up of two trains at its QCLNG project in Australia. BG delivered its first ever LNG cargoes to Egypt, Pakistan and Jordan in 2015.

Production growth was also seen from the company's operations in Brazil and Norway. Capital investment on a cash basis of around $6.4 billion was lower than guidance of around $6.5 billion.

Shell is expected to win shareholder backing for its BG takeover at a general shareholders meeting on January 27 and plans to report its full Q4 results on February 4.

--Robert Perkins, robert.perkins@platts.com
--Ross McCracken, ross.mccracken@platts.com
--Edited by Jonathan Dart, jonathan.dart@platts.com




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