Royal Dutch Shell will halt construction of its Carmon Creek thermal oil sands venture in Canada due to “uncertainties” facing the project, including a lack of infrastructure.
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Profit adjusted for one-time items and inventory changes dropped 70 percent to $1.8 billion, The Hague-based Shell said Thursday in a statement.
It’s yet not over for oil prices to go plunging as BP and Shell will report this week that billions of pounds were shelled off their profits as the aftermath of low oil price associated with exploration failures strike two of Britain’s biggest companies.
Shell, which is buying BG for more than $70 billion, said in July the deal will add to cash flow at $67/bbl in 2016.
Shell announced its plans in March to re-phase the project in a bid to take advantage of the market downturn so as to optimise design as well as retender certain contracts. “These are hard, but impactful decisions”, said Van Beurden. The project has been delayed over environmental concerns.
Seventy per cent of the acquisition cost will be funded by Shell’s own shares, meaning the price of the takeover has fallen as lower oil prices dragged the company’s stock lower.
The sharp drop in revenue from oil production, however, has been offset by spectacular gains in refining and trading segments as lower prices boosted global fuel demand, though the positive impact is expected to fade with the seasonal drop in demand over the winter months. That compares with a profit of $4.5 billion in the same period past year. According to Bloomberg, non-producing oil sands projects need a benchmark crude oil price of a barrel to beprofitable, a far cry from current prices resting at under $50 a barrel.
In February 2015, Shell withdrew its application for the 200,000-bpd Pierre River oilsands mining project to focus on the projects that were already under development, such as Carmon Creek, for which the company had already made a positive final investment decision. Downstream earnings rose by almost half to $2.6 billion in the third quarter, while upstream earnings tanked from $4.3 billion to a $425 million loss. These charges reflect both a lower oil and gas price outlook and the firm steps we are taking to review and reduce Shell’s longer-term option set. In all, Shell’s write-offs come to $8 billion.
“Of course, we are of the view that the U.S. Government should simplify and modernize the permit processes there if there are any ambition to develop oil and gas in the offshore of Alaska”.
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Shell’s capex budget now sits 20% lower at around $30 billion, with capital investment totalling $7.1 billion in the third quarter.
