It looks like the rapid decline in the price of oil is beginning to take its toll. Today Shell announced it would be slashing $15bn (£9.9bn) worth of investment over the next three years as it tries to mitigate the impact.
The announcement came alongside the news that Shell’s profits for the fourth quarter of 2014 were down from $5.85bn in the previous quarter to $3.26bn, missing analysts’ estimates of $4.1bn.
The company’s chief executive Ben van Beurden was obviously keen to downplay the significance of the cuts. ‘We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices,’ he said. ‘Shell is taking structured decisions to balance growth and returns.’
There could be more cuts to come though – ‘Shell has options to further reduce spending, but we are not over-reacting to current low oil prices and keeping our best opportunities on the table,’ it said in a statement. It’s not clear if or how many jobs could be affected, but thousands of workers in the oil and gas sector at large are thought to be at risk as drillers brace themselves for a long-term price slump.
Despite dialing down this investment, Shell has vowed to press on with controversial plans to drill for oil in the Arctic. It was forced to halt operations there when a drilling rig ran aground but asked regulators for approval to start up again last year. Environmentalists are, predictably, up in arms.
‘Shell is taking a massive risk doggedly chasing oil in the Arctic, not just with shareholder value, but with the pristine Arctic environment.’ said Charlie Kronick, a campaigner at Greenpeace. ‘A spill there will be environmentally and financially catastrophic. It’s time for investors to recognise that it’s impossible for Shell to justify its continued pursuit of offshore Arctic oil.’
That’s probably not the reason but investors certainly aren’t happy with Shell this morning. Shares were down 4.25% to 2,152p this morning. What is for sure though is that Shell will need to tread carefully if it continues to search for Arctic oil. After BP’s Deepwater Horizon PR shitstorm, the image of an oil-soaked polar bear or icebergs stained black with crude are something the oil giant will be keen to avoid.