Aggressive asset sales in Gabon, Canada, North Sea push Shell production, reserves southwards

Shell reported falls in upstream and downstream oil production following an aggressive program of asset sales, and a reserves replacement ratio of 27 percent for 2017.

Asset sales in the North Sea, Canada and Gabon contributed to the reduction, and divestments will have a further impact amounting to 270,000 b/d of oil equivalent in the current quarter.

In a preliminary reserves statement, Shell reported a drop in reserves to 12.2 billion boe, from 13.2 billion boe at the end of 2016, giving the company a “reserves life” of just under nine years. Shell’s jettisoning of its Canadian oil sands during the downturn cost it 1.2 billion barrels of reserves, Jessica Uhl, chief financial officer said.

Ben van Beurden, chief executive, Shell said the company was not overly exercised by reserves numbers compiled under the “very stringent” rules of the US Securities and Exchange Commission. These tend to play down the full extent of some resources, particularly shale and the deepwater resources Shell obtained with its $54 billion acquisition of BG in 2016, notably in Brazil, he said.

“We have even quite a few fields operating very well with zero reserves, simply because we’re not allowed or entitled to book anything under very stringent SEC rules,” van Beurden said.

“I’m not particularly focused on reserves,” he said. “What is more important to me is the continuity of our cash flow going forward. If I look through the 2020s, I see no issue when it comes to the continuity of our business, even on our upstream businesses. On top of it, a large and growing part of our business has nothing to do with reserves: oil products, chemicals, new energies, these things are linked to other underlying products.”

Shell reported a 7 percent year-on-year fall in its upstream production unit, which excludes the LNG-focused Integrated Gas unit, for the fourth quarter, with liquids production falling by 11 percent to 1.54 million b/d.

Shell booked $6.5 billion of asset sales just in Q4, and $17 billion for the whole of 2017, part of a drive to sell $30 billion of assets in 2016-18 that has already almost been completed.

The Integrated Gas unit to some extent offset upstream production reductions, with liquids production in the unit increasing by 3% to 229,000 b/d in Q4 compared with a year earlier, and gas by 10 percent to 4.36 Bcf/d.

In the downstream, Shell’s refining throughput fell by 4 percent year on year in Q4, and 5 percent for the full year 2017, to 2.59 million b/d and 2.57 million b/d, respectively, mainly due to the sale of the Port Dickson refinery in Malaysia.