After a Weak 2015, Shell Looks Forward to Welcoming BG

Anglo-Dutch major Shell had a year of declines, some cyclical and some regulatory, but is looking forward now to integrating BG, which will bring savings in property, pay-roll, projects and other costs that fall under ‘synergies.’ It has already announced 10,000 jobs going across the two companies.

“Operating costs and capital investment have been reduced by a total of $12.5bn as compared to 2014, and we expect further reductions in 2016,” it said February 4. Operating costs for 2015 fell by $4.1bn, to $41.1bn, and Shell’s costs are expected to fall again in 2016, by a further $3bn. This is some 15% lower than 2014 levels. Synergies from the BG combination will be in addition to that.

Its 2015 capital investment was $28.9bn, $8.4bn lower than in 2014. Capital investment for Shell and BG combined for the full year 2016 is expected to be $33bn, down some 45% from combined spending, which peaked in 2013, it said.

Upstream earnings were impacted by the significant decline in oil and gas prices, partly offset by lower costs. Contributions from integrated gas were higher mainly as a result of improved trading performance and the effect of the strengthening of the Australian dollar on deferred tax positions.

Upstream earnings included a net charge of $826mn, primarily reflecting asset impairments of some $640mn and a net charge on fair value accounting of certain commodity derivatives and gas contracts of some $210mn, partly offset by gains on divestments of some $100mn.

In 2015, it curtailed spending by shelving investment decisions and designing lower-cost development solutions. This year it has already exited the Bab sour gas project in Abu Dhabi and it is postponing final investment decisions on the integrated LNG Canada project in British Columbia which is aimed at producing gas in western Canada, transporting it across the Rockies for liquefaction and delivery to Asia where it would compete, among other projects, with its LNG exports from Sakhalin Energy. It is partner with operator Gazprom and the project offshore Russia's far east could be expanded from the present 10mn mt/yr output.

Full year 2015 earnings on a current cost of supplies basis, which strips out the effects of commodity price changes, were $3.8bn compared with $19.0bn in 2014. Compared with the first quarter 2015, upstream earnings this quarter are expected to be impacted by some 40,000 boe/d associated with the impact of curtailment and underground storage use in the Netherlands, where the government has imposed a low ceiling on gas production at the giant Groningen field. Shell is part-owner of operator Nam.

On the other hand, offshore Ireland, Shell announced first production from the Corrib gas field of which Shell owns 45%. At peak annual production, the Corrib gas field is expected to produce 45,000 boe/d. 

With 2015 production of 1.1bn boe, Shell’s proved reserves replacement ratio calculated on the US SEC basis is expected to be -20%, a total reduction of 1.4bn boe.

Selected 2015 Shell statistics ($mn)

Source: Shell

William Powell