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Shell signals it will accelerate retreat from the North Sea

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Simon Henry, CFO, Royal Dutch Shell Plc

Simon Henry, CFO, Royal Dutch Shell Plc

Article by Mark Williamson published Friday 1 May 2015

Shell signals it will accelerate retreat from the North Sea

THE finance chief of Royal Dutch Shell has signalled the oil and gas giant will accelerate its retreat from the North Sea, saying the area faces a difficult future unless costs and uncertainties are reduced.

Simon Henry said: “Shell is not necessarily a natural owner of assets in the North Sea. Going forward there are other companies who may well have more expertise but also more incentive to squeeze the value from mature assets.”

He added: “The way Shell typically creates value is earlier in the maturity of the life cycle, we helped to develop the North Sea.”

Indicating that Shell will look to sell off more mature assets, Mr Henry said the company could still create value by transferring them to other operators.

He was asked about the future of Shell’s North Sea operations after the company announced that first quarter profits plunged $4 billion (£2.6bn) amid the slump in oil and gas prices.

The impact was limited by a $600m credit that Shell recognised to reflect the benefit of North Sea tax changes that were announced in The Budget last month.

Mr Henry said the changes could help create a new investment case for the North Sea, which is not currently a very attractive place to invest.

He said: “We do think there is a future, there is a lot of value in the North Sea but at the current cost level and with some of the current uncertainties … then it’s a difficult future.”

Weeks after Shell announced plans to shed at least 250 North Sea jobs this year in response to the oil price fall, Mr Henry’s comments could fuel fears of more heavy job losses. He said workers would have to play their part in helping the industry become more competitive.

“The industry has to play a part, not just Shell, the contractors and maybe some of the staff just to recreate a more viable future,” he said.

Mr Henry said ministers and the new Aberdeen-based Oil and Gas Authority regulator also had to move fast to end key uncertainties that firms face in respect of accessing production infrastructure and the costs of decommissioning assets.

Underlining directors’ belief that the £47bn takeover of BG that Shell agreed recently was a smart strategic move, Mr Henry said the deal would be the springboard for further rationalisation of the company’s portfolio.

He said the fact the deal is due to complete next year when Shell and partners will be close to starting production from the giant Clair and Quad 204 developments West of Shetland would make that a good time to look at the totality of the North Sea portfolio.

BG has some good North Sea assets, Mr Henry reckons.

Led by chief executive Ben van Beurden, Shell is pushing ahead with plans to explore for oil in the Arctic Ocean near Alaska this summer despite opposition from environmental groups.

The company is preparing “an armada of 25 vessels” to begin a two-year programme to explore two to three wells in the Chukchi Sea off the coast of Alaska, Mr Henry said.

Shell made $3.2bn profit on a current cost of supplies basis net of one offs in the three months to March, compared with $7.3bn in the same period last year. Analysts expected it to make $2.4bn.

Profits at the exploration and production arm fell to $0.7bn, from $5.7bn. Some $4.7bn of the difference was due to oil and gas price falls. The Brent crude price averaged $55 per barrel in the first quarter, around half the level in the same period last year.

The downstream refining and marketing arm increased profits to $2.6bn from $1.6bn. Refining margins increased following the oil price fall.

Shell declared an unchanged first quarter dividend of 47 cents per share.

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