The soon-to-be leaner Shell is set to reduce its overall geographic footprint and focus on going deeper, instead of farther.
Shell's chief executive Ben van Beurden outlined a mid-term strategy at an investor meeting on Tuesday that will see the company focus on deepwater exploration and petrochemicals, with shale exploration also becoming a priority after 2020.
The $30-billion asset sale program that the company announced after the acquisition of peer BG Group will continue as planned, to be completed by 2018, van Beurden also said. This counters an FT report that the program could take longer if oil continues to hover around $50, but a delay is not out of the question, since the asset-sale program is based on a scenario of $60 a barrel.
The asset sales will entail Shell exiting between five and ten countries, although these remained unnamed at the meeting. In light of the company's new focus on offshore drilling and petrochemicals, it's safe to suggest that the exits will be from countries where it has onshore operations, although an exit from Nigeria could also be in the offing after the recent major pickup in rebel activity. Earlier this year, the company also said it's putting up some assets in the North Sea for sale, including the Brent field that gave its name to the international crude benchmark.
The company currently has presence in more than 70 countries worldwide. The exits and other asset sales will cut Shell's oil and gas production by a tenth. When reports of the asset sale first emerged in February, various sources had it that the assets on the line are in India, the U.S. (some pipeline infrastructure), and Trinidad and Tobago. Fields in Gabon are also among the assets to be sold. Yet, the focus this year, according to CFO Simon Henry, would be on downstream assets, which usually fetch better prices. Related: Iranian Oil Exports Soar As Shipping Companies Return To Iran
Going forward, van Beurden said that Shell's geographical focus will be on the Gulf of Mexico and offshore Brazil. That comes despite the new offshore drilling regulation in the U.S. that raised hackles among E&Ps present in the Gulf of Mexico. Brazil, on the other hand, currently has a government that has indicated it's much more welcoming to foreign oilfield operators than the previous one. Shell, with its stated focus on offshore oil and gas development, is an obvious partner for embattled Petrobras in the oil and gas-rich pre-salt layer.
The company is also set on growing its presence in renewables, after 2020. "New energies" as Shell calls them, represent a significant growth opportunity over the longer term, along with shale, in the U.S. and Argentina. Investments in these two areas, however, are low at the moment as Shell feels its way around, and van Beurden cautioned shareholders not to expect any quick and high returns initially. Related: Oil Holds Steady As EIA Confirms 3.2M Barrel Draw
The general idea, in the words of van Beurden, is to make Shell a "simpler" company. This drive, necessitated largely by the $52-billion acquisition of BG Group as well as by the oil price slump, will also see the oil giant cut spending by a third. Capex is projected at $25 to $30 billion annually by 2020, with $29 billion earmarked for this year. That's 35 percent less than the combined capex for Shell and BG Group for 2014. In exchange for all these efforts, Shell sees itself as a leaner, more flexible company in the future, and well positioned to take advantage of new opportunities as they emerge.
The Wall Street Journal once compared Shell to ECB president Mario Draghi because of its readiness to do whatever it takes to overcome the challenges it faces - a kind of unfortunate comparison as Draghi's efforts to prop up the Eurozone economy have not been a major success, at least so far. At the moment, Shell looks like it has a better chance to turn things around and not just survive, but achieve sustainable results in a new energy industry environment.
By Irina Slav for Oilprice.com
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Independents are applying for drilling permits to explore the Southern edge of the Louisiana portion of the Tuscaloosa Marine Shale on land. It extends offshore near Mississippi, but is down nearly two miles below the surface offshore. An oil price increase will be needed to make money on that.