Crude oil prices hit 2016 high at $51.29 a barrel
Shell to exit about 10 countries as cost cutting strategy
Crude oil prices rose from $50 per barrel to hit 2016 high at $51.29 per barrel during the early trading hours of yesterday, which is the highest since eight months ago.
U.S. crude oil futures rose 60 cents to $50.29 a barrel, having touched a fresh 2016 peak of $50.37, their highest since October last year.
Recent price gains are said to have been prompted by outages in Canada, Venezuela, Libya and Nigeria.
Crude oil was at a 13-year record $25 low in mid-January 2016 and has soared more than 70 per cent since.
Nigeria’s Bonny Light crude output was down by about 200,000 barrels per day (bpd) following attacks on pipeline infrastructure, even as a new group of militant promised to sustain bombing of oil facilities in the Niger Delta region, to bring production to zero level.
Probably burden by production disruption in Nigeria and other challenges some countries where it operates, Shell has therefore declared its intension to scale down investment and exit oil and gas operations in up to 10 countries to cut costs.
According to the Shell Chief Executive Officer, Ben van Beurde, in the company’s Capital markets day 2016 statement titled: “Re-shaping Shell to create a world class investment case”, released yesterday, programmes to sustainably reduce operating costs are in place across the company.
Beurden said: “ Asset sales, as planned, are expected to be $30 billion for 2016-18. We have earmarked up to 10 per cent of Shell’s oil and gas production, including 5 to 10 country exits, for disposal. We expect to make significant progress on the first $6-8 billion of this programme in 2016.
“As a result of Shell’s portfolio development and investment, we expect to see an improvement in returns in the next few years, our debt reduced, and significant growth in free cash flow, across a range of oil prices. For example, organic free cash flow could reach $20 to $25 billion and return on capital employed some 10 per cent around the end of the decade, assuming $60 oil prices. This compares to 2013-15 averages of $12 billion and eight per cent with average $90 oil prices”.
Beurde who disclosed growth strategy programmes in the company’s operation in U.S. Gulf Coast, China, Argentina, North America and Brazil, was silent on the company’s operation in Nigeria.
He said that by capping capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, the company could be reshaped into a more focussed and more resilient company, with better returns and growing free cash flow per share.
He disclosed: “We are announcing an increase in expected deal-related synergies, from the $3.5 billion set out in the prospectus, to $4.5 billion on a pre-tax basis in 2018, an increase of some 30 per cent. We expect to achieve and exceed the $3.5 billion synergies prospectus commitment earlier than expected, in 2017, when synergies should be $4 billion. Our other deal-related financial commitments to shareholders in the form of asset sales, debt reduction, and dividends, followed by share buy-backs, are unchanged”.
Beurden added: “With our continued strong focus on returns and growth in free cash flow per share I want to create a world-class investment case for Shell shareholders.”
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