Business activities and sales of all the oil companies worldwide are being highly affected due to decreasing petroleum prices and Royal Dutch Shell is the most recent name on the list that is undergoing through its biggest challenge in decades.
Shell posted a $7.4 billion loss on Thursday, in comparison to a $4.5 billion profit last year, resulting in 70% fall in profit. The company faced around $7.9 billion debt for activities that includes one halted deal outside Alaska and a terminated project in Canada. Shell, along with other oil companies are now adjusting to the reduced prices and also are on a quest of a feedback regarding global concerns.
As per Shell’s statements, the company is now operating with huge debt. They also took a supplementary loan of $3.7 billion, inclusive of $2.3 billion on their North American properties due to reduction in oil and gas prices.
Shell’s chief executive, Ben van Beurden has been scrutinizing their plans and suspending some of the expensive and long-term projects. For example, Shell is now halting a project named ‘Carmon Creek’ in Alberta due to its necessity of huge capital and for this project Shell would require $2 billion debt. As stated by analysts, Mr. Beurden’s focus is to correct the missteps of his predecessors so that Shell can concentrate on its strengths in liquefied natural gas and deep water oil projects.
Recently Shell terminated its ineffective and costly nine-year $7 billion investment in the Alaskan Arctic. According to Ben van Beurden, Shell drilled ‘a dry hole’ in the Chukchi Sea that was ‘a major disappointment’ and resulted in a worthless further drilling. Besides Ben van Beurden accused the licensing method in the United States, saying that authorities ‘should simplify and modify the permitting process’, if they desire any further development in this sector. Shell said on Thursday that for Alaska $2.6 billion was taken in write-offs.
Right now the ultimate challenge is to follow the conventional way of business, which is finding, producing and selling, not only for Shell but also for all other oil companies. Shell lost $425 million in exploration and production unit, exclusive of the big debts, in contrast to a profit of $4.3 billion last year.
According to Shell’s chief financial officer, Simon Henry, Shell’s break-even cost of oil was around $60 a barrel, where prices bounced around $48 a barrel for Brent crude.
Ben van Beurden said that Shell would proceed cautiously to achieve the British oil and gas producer, the BG group and the transaction is expected to be closed within 2016.
Some of the shareholders believe that the actual price of $70 billion is excessive, although Simon Henry perceived that as 70% of the actual price would be reimbursed in Shell’s shares, that have already fallen in amount, there is ‘a natural hedge’. Shell’s British rivals, BP informed a big cavity in profit this week. Alike BP, Shell is being assisted by its marketing, refining and petrochemicals units, in which the profits were clearly increased from $1.8 billion to $2.6 billion within a year.
The downward trend of petroleum prices is being felt by all oil producers. Amongst those, the Italian company Eni commented that the adjusted operating profit descended by 75% to $828 million.
Some companies aren’t as volatile as others. Total, one of the six biggest oil companies in the world, stated on Thursday that its accustomed net income for the quarter dropped by 23% to $2.8 billion, especially due to a firm conduct at its refining and chemicals units.
Source: The New York Times
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