With New Purchase, Shell May Be Less Keen on Arctic

Royal Dutch Shell announced this week a plan to purchase a major British LNG company, and statements by top executives suggest Shell may now be less committed to its future in Alaska’s offshore Arctic.

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Shell CEO Ben Van Beurden  said at a conference yesterday the combined company would sell off assets over the next three years to raise $30 billion and to focus more on its core business.

“We plan to undertake a portfolio review to assess which assets should stay in the enlarged group, and which positions would be better owned by others,” he said at a conference Shell called to explain the $70 billion deal.

If the deal to buy BG Group goes through, the conglomerate would be the third largest gas-producing company in the world. Business analysts say Shell’s move indicates it sees a brighter business future for natural gas versus oil, and that Shell finds it cheaper to buy reserves rather than explore and develop new ones.

Van Beurden says the purchase of BG will accelerate its plan to pare down to three pillars: Mature cash-producing businesses, integrated gas – meaning LNG and gas-to-liquids projects — and deepwater assets.

“It was of course always the intention over time to build a much more streamlined, much more focused company. This gives you the opportunity to do that straight away,” he said.

Shell, on its website, classifies the Arctic as a future opportunity, not included in any of those three pillars. In the company’s slideshow at the conference yesterday, the Arctic is only mentioned – along with heavy oil, Nigeria and Iraq — as a “longer term option,” the category slated for review and reduction. Van Beurden declined to say which assets might be sold, citing commercial tactics, but he did call for a course correction.

“So yes, you will see some changes in the priorities that we have communicated or implied in recent times as well,” he said.

Shell CFO Simon Henry says the combined company would spend less on conventional exploration. In January, Shell announced that it was committing $1 billion from that budget to resume drilling in the Chukchi Sea this summer. A Shell spokeswoman in Alaska says that plan is still proceeding.  Two Arctic-bound drilling rigs are crossing the Pacific now, one on a ship that was boarded by Greenpeace protestors.

Henry, the CFO, told the British newspaper The Independent that if Shell is able to drill in the Arctic this year, a small number of wells would reveal the potential.  He said the company won’t walk away if they find good value. Shell has so far spent more than $5 billion on its off-shore Alaska program.