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Shell loses $6bn on Q3 writedowns

Shell has reported a third quarter loss of $6.1bn - net of $8.2bn of upstream writedowns and charges linked to its unsuccessful Arctic drilling


Significant charges were already expected since Shell a month ago called off future Arctic drilling "for the foreseeable future" off Alaska, admitting it had sunk $7bn of costs on the failed and environmentally controversial drilling campaign.

Speaking at Shell's results on 29 October, CEO Ben van Beurden described Alaska as a "major disappointment... the only good thing was that it was a conclusive result" as the Burger well had been a dry hole. Shell had demobilised its fleet and was winding down activities, he added. Finance chief Simon Henry said the value of Shell's remaining Beaufort and Chukchi Sea leases expiring 2017-20 "won't be significant" as the US had effectively denied an extension of them.

Shell said its $8.2bn upstream charges include writedowns of $2.6bn for Alaska and $2bn for abandoning construction of its planned 80,000 barrel of oil equivalent/day (boe/d) Carmon Creek bitumen project in Canada - with reserves there to be de-booked - plus some $3.7bn of impairments triggered by the lower oil and gas price outlook. There were also $1bn of currency exchange-related charges.

Current cost earnings, excluding such exceptionals, were $1.8bn - down 70% from the $5.8bn earned in third quarter 2014, chiefly owing to lower oil and gas prices. Shell's actual production in 3Q 2015 was 2.88m boe/d, up 3% year on year, because of divestments, the expiry of the Malaysia Dua LNG production sharing contract, and other effects in Netherlands and Nigeria. If these were excluded, Shell said its underlying production grew by 9%.

Equity LNG sales of 5.31m metric tons in 3Q 2015 were 7% lower, also linked to Malaysia Dua, while Netherlands gas production was some 60,000 boe/d lower. Job losses going forward would be 7,500, said Henry, compared to its July estimate of 6,500, because of an extra thousand to be shed in Malaysia.

Van Beurden said Shell's acquisition of BG Group remains on track for completion in early 2016 and represents "a springboard to focus Shell into fewer and more profitable themes, especially deep water and integrated gas". Shell's estimated capex remains unchanged at roughly $30bn for 2015, with the Shell-BG combo still forecast to spend $35bn in 2016.

The BG acquisition, originally valued at $70bn cash plus $12bn assumed debt, was a "natural hedge", said Henry, as the cash component is valued 70% in Shell shares and only 30% as cash. That $70bn valuation had fallen to only $56bn a week ago because of low oil prices, although this week it was in the low $60bns. "A low oil price at the conclusion of the deal is not a bad thing", he said.

BP reported its 3Q earnings on Tuesday while Total and ENI had theirs also on Thursday. Net 3Q profit for BP shrank to only $46m - from $1.29bn a year before - after adjusting for $927m of charges in the latest quarter; its production was 2.24mn boe/d, 4.4% higher than the third quarter of 2014 - although underlying output was down by 2.2%. Total's adjusted net 3Q income fell by 23% to $2.8 bn, which CEO Patrick Pouyanne said showed the group's "resilience" given that the oil prices had fallen by 50% in one year, and its production grew 10% to 2.34m boe/d thanks to ramp-ups from new projects in Angola (Clov, since June 2014) and the North Sea.

Italy's Eni reported an adjusted 3Q 2015 net profit was $1.17bn, versus a year-before $257m loss, and production grew 8% to 1.7m boe/d. All four companies are benchmarking future projects on oil prices remaining in the $50 to $60/bbl range in near term.

Shell sees options in Iraq

Shell said options were open in Iraq: its Basrah gas joint venture and Majnoon project were working well but it was in talks with the government on reducing Majnoon spending levels. Van Beurden had little to add on recent talks with Iranian officials on a possible Shell re-entry there.

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