Shell to slash oil field spending, jobs in the Americas

HOUSTON — Shell will slash spending and staff in its oil and gas field operations in the Americas, CEO Ben van Beurden told investors Thursday, largely in response to disappointing results in U.S. shale plays.

Shell announced that it will reduce spending in its upstream Americas unit by 20 percent this year. In a presentation released Thursday, the company said it also is planning a 30 percent cut  in company and contractor staff in its North American, onshore portfolio.

About 400 Shell positions will be eliminated from the unit. Kayla Macke, a spokesperson for Shell Oil Co., the Dutch oil giant’s U.S. arm, said part of that figure could include layoffs, but she did not elaborate. She said the company is looking to redeploy many of those people affected by the restructuring to other parts of the organization.

“We don’t want to lose that technical talent,” Macke said.

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The size of the workforce in the division would fall from around 1,800 to around 1,400, she said. Shell employs around 92,000 people worldwide, including 31,000 in North America, according to its most recent annual report.

The staffing shakeup comes at at time when it’s also looking to exit several unconventional plays as part of a effort to improve efficiency and returns.

Shell listed the Eagle Ford Shale in South Texas among the areas it hopes to exit, along with shale plays in the Rocky Mountain region and the Mississippi Lime in Kansas and Oklahoma. “Drilling results there were mixed,” Shell Oil President Marvin Odum told investors at an event Thursday in London. The company said the Permian Basin in West Texas is among the areas where it hopes to grow.

Odum said the company wants to shift its focus away from dry gas and toward higher-value liquids. The company is undergoing a major review of its natural gas portfolio, which includes “reducing the overall size of the organization around these assets,” he said, adding that the company has already taken steps towards cutting staff in the upstream division.

Financial loss

The company took a $900 million loss in its North and South American upstream operations in 2013, the company said in the annual report released Thursday. In the U.S., Shell produces oil and gas in the Gulf of Mexico; heavy oil in California; and tight gas and liquids in Louisiana, Pennsylvania, Texas and Wyoming.

“We’ve done well in some areas, but overall we … are not happy with the recent financial performance, and we will improve here,” Odum told investors.

In comments to the media, van Beurden — like a growing number of oil and gas producers — lamented the fact that profit margins in some unconventional U.S. resource plays have remained narrow.

“Overall, we are working through the fundamental shake-up of the resources play portfolio and the way we operate,” he said.

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The company is seeking growth in the best plays and wants to divest from others, namely those focused on dry gas, he suggested.

Shell said in its annual report that while it’s invested significantly in tight gas and liquids in shale, and it would continue to work in those areas — but it will sell assets if wells don’t meet expectations.

Effective investment

The company also has struggled in Alaska, where in 2012, one of its drillships ran aground. That and other mishaps, along with regulatory concerns, contributed to Shell’s decision to suspend Arctic offshore operations in which it already has invested $6 billion.

“Shell has a strong asset base and industry leadership in many of its growth themes,” Van Beurden said in a statement. “While this position of strength gives confidence for the future, it is also clear that we need to get a tighter grip on performance management in Shell.”

Company officials touted the moves as steps that would allow them to spend their money more strategically. Van Beurden said the company is focused on achieving better financial performance, specifically calling out the need for improvements with its upstream, American operations as a way to improve its cash flow and returns.

Shell’s shakeup is the latest move by a big oil producer that’s finding that the domestic energy boom isn’t exactly a recipe for success. Earlier this month, BP announced that it would split its U.S. onshore oil and gas segment into a separate business. Company officials said the move was necessary because they needed a smaller, faster company in order to compete with the smaller players that tend to have the most success in those shale plays.

Van Beurden said the move was part of a strategy that focused on “accountability” and said the company would focus on more effective investment while selling assets that didn’t fit into its strategies. The company has already announced $4.5 billion in asset sales this year.

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