Shell to cut spending by $15B over next 3 years

January 29 06:40 2015

Royal Dutch Shell shares fell on Thursday after the oil company missed profit expectations and announced a three-year, $15 billion (10 billion pound) cut in spending reflecting a steep fall in oil prices. Chief Executive Ben van Beurden however warned against an over reaction to the 60 percent drop in oil prices since June, while keeping dividends unchanged to soothe investors. “We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices,” van Beurden said.shell_0

Shell shares were down 3.7 percent at 0826 GMT after the company’s fourth-quarter 2014 adjusted net income of $3.3 billion missed market expectations by more than 20 percent. “It was a big miss in upstream,” said Raymond James analyst Bertran Hodee. The $15 billion spending cut, which will involve cancelling and deferring projects through 2017, which would represent a 14 percent cut per year from 2014 capital investment of $35 billion.

Reflecting the new oil price environment, Shell, having said in October it would keep its 2015 spending unchanged, announced it would have to cut what is one of the largest capital investment programmes in the industry. “Shell is considering further reductions to capital spending should the evolving market outlook warrant that step, but is aiming to retain growth potential for the medium term,” it said in a statement. Oil prices have fallen because of weak global demand and a boom in U.S. shale production. OPEC in November decided not to cut output as the group of oil producing nations hopes to force other producers to trim production.

Oil majors including rivals BP and Total have said they do not intend to cut their dividends, a key attraction for investors, even if oil prices remain low. Most have already announced cuts in capital expenditures of around 10-15 percent and sold assets worth dozens of billions of dollars. But they have warned against cutting too much as it could derail long-term projects, destroy the value of companies and potentially even lead to an oil shortage in the future.