The CEO of Royal Dutch Shell says though it is working through a difficult oil-market downturn, the oil major will remake itself after it completes its $50 billion takeover of British gas producer BG Group this month.
The acquisition, expected to close Feb. 15, “will mark the start of a new chapter at Shell,” CEO Ben van Beurden told investors Thursday after reporting a 56 percent slide in fourth-quarter profits. The BG Group acquisition will boost Shell’s natural gas reserves by a quarter.
After the deal closes, Shell expects to spend more than $15 billion – the biggest portion of its budget this year – on deep-water oil developments and its integrated gas business, both of which were central selling points of the BG Group deal.
BG Group has billions tied up in deep-water fields off the coast of Brazil and in liquefied natural gas trains in Australia, and van Beurden said he expects the next wave of energy production to come from 2016 to 2019 as projects come online.
“Integrated gas and deep-water, which have been growth priorities for Shell in recent years, will reach significant scale with its BG position included,” van Beurden said.
Shell’s LNG earnings halved in 2015 because LNG prices track crude prices, but the company remains hopeful because global demand for LNG has been growing at 8 percent a year over the last decade. Shell Chief Financial Officer Simon Henry acknowledged that the growth in demand for LNG appears to be slowing in China and other markets, but said by the next decade more countries will be buying LNG.
Today, Henry said, 30 nations import LNG and 20 export it, but the number of importing countries is expected to grow to 50 by early next decade, while the number of suppliers grows to 25.
The BG Group deal will come with big operational cuts, though.
“We’re pulling on powerful financial levers to manage the company in the industry downturn,” van Beurden said.
Shell will cut its budget, which will be combined with BG Group’s, by $3 billion to $33 billion – down by about 45 percent since 2013. Only $3 billion of that total will be spent on high-cost U.S. shale production and heavy oil projects in Canada and elsewhere.
Shell will also cut $3 billion in operating costs and 2,800 jobs this year after the merger, and it’s planning to sell $30 billion over the next two years.
Shell’s profits fell 56 percent in the fourth quarter, its oil-production business hit hard by the market downturn but its refining and marketing side remained steady in the final three months of last year.
Shell said Thursday it banked a profit of $1.8 billion, or 29 cents a share, in the fourth quarter, down from $4.2 billion, or 66 cents a share, in the same period the year before.
The Anglo-Dutch oil major’s upstream earnings fell 71 percent to $493 million, though the company said lower costs offset the plunge, while its downstream income dipped just 2 percent to $1.52 billion, partly the result of improving the unit’s finances.
Shell’s job cuts this year will bring its headcount reduction since the downturn began to 10,000. It cut its operating costs and capital spending by $12.5 billion last year.
For the full year of 2015, Shell’s profits sank 80 percent to $3.8 billion.