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The Allure Of Shale Is Wearing Off

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Screen Shot 2016-02-17 at 08.47.47By Nick CunninghamThu, 25 February 2016

Royal Dutch Shell revealed its plans to downgrade its emphasis on expensive shale operations, although it was not worded in those terms.

The Anglo-Dutch supermajor says that it would fold its “unconventional” unit (i.e. shale) into its broader upstream business. Shell also announced that Mavin Odum, long-time top official from the North American arm of Royal Dutch Shell, will retire after more than three decades at the company.

The two announcements are consistent with Shell’s decision to takeover BG, which was a large bet on LNG and offshore oil plays, particularly in Brazil and Australia. It is also evidence that Shell is deemphasizing its attention and resources on North America, where it has placed several costly bets that have soured. In 2013, Shell cancelled plans to build a $20 billion gas-to-liquids plant in Louisiana. In 2014, Shell sold off shale acreage in Texas, Colorado, and Kansas, according to Reuters, while also divesting itself of Pennsylvania and Louisiana shale gas assets.

Last year, Shell pulled the plug on Arctic drilling after almost a decade of work and billions of dollars wasted. It also scrapped a major oil sands project in Canada in October because of low oil prices. Shell’s oil sands assets will be folded into its downstream refining unit.

Shell downplayed the significance of its latest restructuring, insisting that its North American focus will not change. Folding the unconventional unit into its larger upstream business is “not minimizing, it’s mainstreaming, more than anything,” Odum said in an interview with Fuelfix. “We’re simply moving that shale business into the globalized upstream business, but the substantial nature of those resources, the quality of that portfolio, none of that changes,” Odum stated.

But it is hard to deny the fact that Shell is in the midst of a dramatic overhaul. It was only a few months ago that Odum took over the unconventional unit after the company’s failed Arctic campaign. But the announcement this week is further evidence that Shell is not only backing off of U.S. shale, but more broadly the company is downgrading its emphasis on North America writ large. All of the North American standalone units are being placed under global umbrellas.

More importantly, Shell spent over $50 billion to takeover BG Group, which has assets in Australia, East Africa, and Brazil. Shell will sell off more than $30 billion in assets over the coming years to make the purchase fit with its restructuring plans.

Less than two weeks ago, Shell’s CEO Ben van Beurden was in Rio de Janeiro talking up the company’s opportunities in Brazil upon the completion of the takeover of BG Group. He said that Brazil was a “top three” country for Shell and it was also “the most valuable country in our portfolio” in terms of production potential.

For Shell, and others, that excitement no longer extends to U.S. shale.

By Nick Cunningham of Oilprice.com

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