by Emily Gosden / The Telegraph
Royal Dutch Shell profits dropped 60pc to $2.4bn (£1.6bn) in the second quarter after drilling of its shale oil assets in North America showed they were worth $2.1bn less than it had thought. Excluding the impact of the big one-off writedown, profits still fell 20pc to $4.6bn, a result chief executive Peter Voser admitted was “clearly disappointing” and blamed in part on the deteriorating security situation in Nigeria.
Shell also continued to play down the prospects for shale gas in the UK and said recent controversy over fracking showed it was right not to get involved.
The Anglo-Dutch giant, which saw shares fall more than 4pc, said it would begin a major divestment programme, exceeding the $21bn it has sold in the last three years.
It plans to sell small US shale oil fields that it is not interested in developing, and onshore Nigerian oil assets where it is struggling to stem sabotage and theft.
Shell announced it was “retiring” its target for increasing production to 4m barrels per day (bpd) by 2017, from just over 3m bpd now, to focus on financial targets instead.
Mr Voser, who is to retire early next year, said the output target was no longer “relevant” as it sold off producing assets and expanded into areas such as liquefied natural gas (LNG) trading.
Shell said the $2.1bn post-tax write-down related to shale oil assets that it had acquired over the past five years and reflected “the latest insights from exploration and appraisal drilling results and production information”.
Mr Voser rejected suggestions this was a sign that US shale oil potential had been overhyped, saying he was “convinced” that it was still “going to be a success story for Shell”. Shell still has $24bn of North America shale assets, about one-quarter of which are oil.
But Mr Voser said the potential for shale gas and oil elsewhere in the world had been “a little bit overhyped” and he remained “very sceptical” of its potential in Europe where it had not been proven.
He continued to pour cold water on the prospects for shale gas in the UK, explaining that an area could only be declared commercial for production after 30 to 50 successful fracking wells. “You have maybe one well or two in the UK – I would not read too much into that, we had that in many other areas,” he said.
Simon Henry, Shell’s chief financial officer, said earlier this year Shell was not interested in shale gas exploration in the UK because it did not want to be “in the headlines every day”.
Alluding to the anti-fracking protests in Sussex in recent days, Mr Henry said on Thursday: “That was probably a good call, looking at the current headlines.”
Shell’s underlying result was well below the expectations of analysts, who had predicted broadly flat profits. Mr Voser highlighted the impact of disruption in Nigeria, which cost it at least $250m in the quarter.
He said the problems of theft and sabotage were now an “endemic issue” and Shell was working with the Nigerian Government and other companies but could not solve it alone. It planned to sell more oil producing assets to indigenous companies to increase local involvement, describing it “the right strategy for the country but also the right strategy for Shell”.
It would not exit onshore Nigeria entirely as the gas production was “very important” but would be “less represented over time” in oil onshore.
Exploration costs rose to $1.2bn including $600m for unsuccessful wells in French Guiana, the Gulf of Mexico and Egypt as well as the North American shales. Shell announced a dividend of 45 cents a share, up 5pc on the same quarter last year.