Shell says lower oil prices could affect pace in Permian
Posted by Ryan Holeywell
HOUSTON — European oil giant Royal Dutch Shell is in "no hurry" to develop unconventional plays in the Permian Basin or Western Canada amid the current slump in oil prices, Chief Financial Officer Simon Henry told journalists Thursday.
Henry's comments come at a time when West Texas Intermediate, the U.S. benchmark price, measured $81.12 per barrel Thursday morning — about 20 percent lower than its peak earlier this summer.
"We haven't pulled the trigger on major development in the Permian or Western Canada," Henry said on a conference call with reporters.
The company had previously identified those as areas where it hoped to grow, while it's sold other shale assets in North America.
"At $80 it looks less good than it did at $110," he continued, adding that the company is in the latter stages of appraisal in both areas. "It's probably less likely we'll do so with an $80 price. You always have to look at the balance between price and cost."
He called the two assets attractive even though the current price environment may delay development. "We look forward to developing them over time, but we're in no hurry to do so," he said.
The company saw its profits slide 4.6 percent in the third quarter as it began to feel the dip in crude oil prices.
The company reported earnings of $4.46 billion, or $0.70 per share, down from $4.68 billion, or $0.75 per share a year ago.
Company leaders said slumping oil prices are starting to squeeze revenues — down 7.4 percent to $107.85 billion. Only about a third of the recent slide in oil prices's impact was felt in the third quarter earnings.
But Shell officials were adamant that despite falling crude oil prices, they won't be rash about pulling back on investments. "We're not going to jump to any rapid decisions to stop, cut, or slash anything," Henry told analysts on a conference call. "That, in the short-term, will only destroy value."
Henry's comments come during a week when many oil executives executives were forced to directly and publicly address falling oil prices for the first time since crude prices began their slide this summer, as they addressed analysts' questions during the third quarter earnings reporting period.
Henry put the falling prices' impact in crystal clear terms, telling investors that Shell is "not immune" from their effects and every $10 decrease in Brent oil prices would result in a $3.2 billion decrease in annual earnings.
Still, company leaders remained steadfast. Chief executive Ben van Beurden said in a statement that falling oil prices underscore the need for Shell to remain committed to efficiency and managing its portfolio.
"The recent decline in oil prices is part of the volatility in our industry," he said. "It underlines the importance of our drive to get a tighter grip on performance management, keep a tight hold on costs and spending, and improve the balance between growth and returns."
In its presentations to investors, Shell highlighted improvements in its upstream division, which benefited from higher-margin production and lower exploration expenses in its integrated gas business. Shell produced 2.79 million barrels of oil equivalent per day in the quarter — a 4.8 percent dip from the same period a year ago — but Henry said the company is achieving better profit margins from that production than it has in the past.
He touted the proceeds of Shell's asset sales, about $11.6 billion so far this year with more on the way. The company is in the middle of an effort to dispose of assets, particularly in its upstream Americas division, that it doesn't see as fitting within its strategy.
Recent exits from Pinedale dry gas play in Wyoming and Haynesville dry gas play in Louisiana, van Beurden said, mark the end of the sell-off from its North American shale portfolio. "We are now focusing on creating value from this slimmed-down position," he said. The company will have exited assets that amount to the equivalent of 11 percent of its 2013 oil and gas production this year, Henry said.
Henry told journalists that Shell plans projects for a range of oil prices, from $70 to $110 per barrel. "We try not to overreact to short-term movements."
Brian Youngberg, an analyst at Edward Jones, said Shell has the flexibility to keep spending despite falling crude prices.
"They're willing to take their debt higher," Youngberg said. "They feel they have a lot of flexibility there. I think it makes sense. They can play this out."
Separately on Thursday, the company named Charles Holliday its board chairman. Holliday, a former DuPont chief executive, will take the helm if approved by shareholders at the company's 2015 annual meeting. He'd be Shell's first American chairman.