Shell CEO: “We have to live within our means”

HOUSTON — The CEO of Royal Dutch Shell says the $8.2 billion in upstream charges it took for abandoning big projects in the Arctic and Canada came as the company has adjusted to worsening oil prices.

“We have to live within our means,” Shell CEO Ben van Beurden said in a conference call with investors Thursday. “And it means living within our means at today’s oil and gas prices. … We’ll probably have a more conservative outlook than what we had before, but I do not want to predict numbers here.”

The oil bust has forced Shell and its rivals to recalibrate the timing and affordability of projects around the world, and so far big oil companies have written off billions in assets or deferred or called off projects that would have added tens of thousands of barrels of crude to the market.

Shell’s $6.1 billion third-quarter loss, announced Thursday, was mainly the result of billions in impairment and restructuring charges after it ditched two massive projects in the Arctic and Canada. Abandoning those multibillion-dollar ventures cost Shell $4.6 billion in write-offs and restructuring charges related to layoffs and other items, and low energy prices forced another $3.6 billion in impairments in its U.S. shale business and elsewhere.

UBS analyst Jon Rigby asked van Beurden why Shell’s modern era has been periodically marred by large impairment charges if it is — as advertised — using a sophisticated process to decide where and how to deploy capital.

“Could that process be tightened up going forward?” Rigby said. “Because it would seem to me even though you talked about a sophisticated process and you’ve talked about the environment and the scenarios, there is evidence that you periodically get it quite wrong.”

Van Beurden said one of this key priorities since he became CEO in 2014 has been to figure out ways to improve how it manages capital investments “by making not only the decision-making process more robust, but also make it much earlier in the cycle.”

“This has been a significant focus over the last few years,” he said. “I’m not going to sit here and say no, impairments are actually good and healthy … We have to make sure in the main that you avoid impairments that can clearly be traced back to poor decision making around capital investments and deals that we have done.”

The chief executive added Shell needs to try to learn from its past in the Arctic “as much as possible.”

Related: Even as it walks away from Arctic drilling, Shell keeps door open for future work

Shell’s Canadian oil sands project called Carmon Creek, which could have pulled up 80,000 barrels of oil equivalent a day, became too costly as crude prices sank. Oil sands projects generally require oil prices to hover around $80 a barrel to be profitable, considering the enormous cost of producing the thick oil.

In August, Shell said it would halt its efforts in the Arctic north of Alaska after it drilled a dry hole, but in a statement Thursday it said it is “considering our options in order to protect the remaining value of our assets and leases,” which don’t expire for a few years.

“The only good news about Alaska was it was a very conclusive result,” van Beurden said. “You would expect exploration in this remote climate to be more expensive and you would only do that if there was a significant amount of barrels to be discovered. But as it turned out, this one turned bad on us.”

Shell’s $6.1 billion loss in the third quarter, about 97 cents a share, compared to a $4.5 billion gain, or 83 cents a share, in the same July-September period last year. Revenues fell from $107.9 billion to $68.7 billion in the same time.

Excluding impairments and other items, Shell’s upstream unit pulled in $4 billion from operations, down from $8.9 billion last year. Its downstream operating cash surged from $3.2 billion to $6.6 billion as low energy prices kept its refineries running on cheap feedstock to make gasoline and other products.

Shell CFO Simon Henry said after it closes its deal to buy BG Group next year, its capital expenditures will naturally increase from the estimated $30 billion this year to $35 billion. The company didn’t say how much it planned to spend next year.