In a Thursday morning presentation, Royal Dutch Shell’s (RDS.A) new CEO Ben van Beurden did his best to placate investors who might still be aghast at the company’s performance in 2013, particularly during the recently-ended fourth quarter which turned out to be its worst in some 5 years.
Van Beurden’s promise to shift focus primarily to assets that are “attractive economically” and “resilient to industry cycles” may seem like an obvious platitude, but it is likely a breath of fresh air for shareholders who have seen the company waste money in spectacular fashion for little to no return in recent years.
Like many of the vertically integrated oil giants, Shell was too busy abroad to get in on the US “shale boom” and felt compelled to buy in late at high cost. The company spent at least $1 billion on Texas’s Eagle Ford, where some independent producers have practically made their names, but found itself unable to make heads or tails of the play.
Indeed, the company’s performance in the US has been so dismal that it is considering spinning off its mainland US assets into a standalone. Over the remainder of 2014, however, it will be divesting from some $15 billion in assets around the world, including Australia, Nigeria, the North Sea, and Canada.
While the spending cuts and asset sales are being portrayed as the actions of a management team that is taking a more serious approach to its sprawling business, the matter is likely far more serious. The $44 billion in capital expenditures in 2013 resulted in returns of no more than 8 percent. And while this figure is the worst among oil supermajors, there is no doubt that Shell’s peers are more or less in the same boat, forced down the path of streamlined operations as replacement reserves are harder and harder to come by at such a large scale.
In afternoon trading, shares for RDS.A were down 1.33 percent to $71.46 a piece.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer