Shell vows to press on with projects amid cost cuts and falling profits

Shell has pledged to continue with its controversial tar sands projects but has been forced to consider far-reaching cost cuts to keep the operations going after they lost $42m (£28m) in the last three months.

Peter Voser, the company’s chief executive, said the success of its investment at Athabasca in Canada should be judged over decades, not just a period when crude prices had slumped to $50 a barrel, down from $150 a barrel last year.

“When we build projects, we take a long-term view. Oil sands is something that produces for 30-40 years and you do not get too nervous if short-term volatility drives you in a down cycle. We are not sitting around doing nothing, so we are working at all levels of operating costs, they are being reviewed and several cost initiatives have been identified and implemented,” he said.

“We are renegotiating contracts with the vendors, we are looking at staff levels, we are looking at travel and training costs, so in a general sense we are turning over all the stones and looking at costs. However, this does not change our strategy for the long term.”

The losses in a tar sands business, which is opposed by environmentalists because of the high carbon content of the schemes, helped drag down the group’s overall first-quarter profits by 62% to $3.49bn; sales halved to $58.2bn.

Shell also suffered a 3.5% decline in overall production, blaming quota restrictions by the oil cartel Opec and attacks on its facilities in Nigeria. It pumped 3.32m barrels of oil equivalents a day.

The company has been struggling with attacks on its oil installations in the Niger Delta which have forced it to undertake repairs on pipelines and pumping stations.

Next month the handling of Shell’s operations in the oil-rich west African nation will come under further scrutiny with a legal case opening in New York over alleged complicity in human rights abuses there, which the company denies.

After seven years of declining production volumes, Shell has been investing heavily in new production and has promised an average yearly increase of at least 3% through to 2012.

It plans $31bn of investment in 2009, compared with $20bn being made by BP, which also reported a sharp decline in first quarter profits this week.

Shell said new fields that had begun production in the quarter included a large gas project on Russia’s Sakhalin Island which is expected eventually to deliver 395,000 barrels a day.

GUARDIAN ARTICLE