ROYAL Dutch Shell’s finance chief, Simon Henry, has hailed a big improvement in its performance in the North Sea which he noted had followed 1000 job losses in Aberdeen but said the firm could not rule out further cuts in staff numbers.
The oil and gas giant unveiled an 18 per cent increase in third quarter underlying profits to $2.8 billion (£2.3bn), from $2.4bn in the same period last year. This was driven by squeezing costs out of the enlarged business following the £37bn acquisition of BG.
Shell’s giant rival BP saw third quarter profits fall by 50 per cent, to $0.9bn, from $1.8bn, as lower oil and gas prices weighed on the profitability of the firm, which has cut hundreds of North Sea jobs.
BP said it has increased the valuation of its North Sea portfolio by hundreds of millions of dollars to reflect changes in its oil price assumptions following the partial recovery in crude prices this year.
However the company made clear it is planning for a long period of low oil prices, in which crude will continue to sell for less than half the $115 per barrel it fetched in 2014.
On a call with reporters, Shell’s Mr Henry highlighted the success of efforts to boost efficiency in the North Sea where he said the whole industry has improved its performance amid the crude price slump.
The response has involved firms slashing investment off Scotland, in moves which have inflicted pain across the supply chain.
Mr Henry said: “We’re seeing improvements around the world in performance, both reliability and cost reductions but possibly the most impressive improvement has actually been in the North Sea.”
After reducing the operating costs on some fields by as much as 50 per cent, Shell is now making money in the North Sea. “It’s not the most profitable asset in the portfolio but it is cash generative,” said Mr Henry, who noted the improvements partly reflected the loss of around 1,000 jobs in Aberdeen.
He added: “I can not rule out any further changes in the number of jobs but I will say we’ve seen effectively still a very motivated and successful workforce that’s done a great job in delivering the performance improvements we have seen.”
Asked whether Shell had any concerns that the Scottish Government may look to hold another independence referendum following the Brexit vote for the UK to leave the European Union, Mr Henry said: “We were very clear before the first referendum about believing that better together was the right economic and political outcome. I appreciate the world has moved on, so can I leave that to the politicians?”
Shell said lower oil prices continue to be a significant challenge across the business. The outlook remains uncertain.
However, Mr Henry said the BG acquisition has put Shell in a good position to increase returns over the oil price cycle. The company will focus investment on a narrower range of bumper projects that it expects will yield big profits for years.
These include the Clair and Schiehallion fields that it will bring onstream off Shetland with BP in coming months.
But the company expects to sell some North Sea assets to help meet its target of raising $30bn from disposals.
The cash will be used to help reduce debt, to support dividend payments and possible share buy backs and for investment.
Shell maintained the third quarter dividend at 47 cents per share.
BP held its third quarter dividend at 10 cents per share.
The company made $933m underlying profit in the quarter, against $1.8bn last time.
Chief financial officer Brian Gilvary said “We continue to make good progress in adapting to the challenging price and margin environment. We remain on track to rebalance organic cash flows next year at $50 to $55 a barrel, underpinned by continued strong operating reliability and momentum in resetting costs and capital spending.”
BP booked one off credits worth around $1.5bn in total to reflect changes in the valuation of assets in the North Sea and Angola.
It took a $189m charge for the Gulf of Mexico oil spill taking the total bill for the incident in 2010 to $61.8n.
Royal Dutch Shell A shares closed up four per cent, 76.5p at £21.15.
Shares in BP closed down four per cent, 21.65p, at 462.05p.
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