* Capital spending to fall to $37 bln from $46 bln
* Sets disposal target of $15 billion for 2014-15
* Cancels 2014 plans for oil exploration off Alaska
* Plans 4 pct rise in Q1 dividend to $0.47 per share
* Shares up 1.3 pct
By Sarah Young
LONDON, Jan 30 Anglo-Dutch oil company Royal
Dutch Shell has suspended its controversial Arctic
drilling programme as part of a wider drive to cut spending and
streamline operations following a major profit warning.
Just a month into the top job, Chief Executive Ben van
Beurden set out plans to make the world's No.3 investor-owned
oil company leaner, with a new focus on growing cash.
The planned changes follow a profit warning for the quarter
to the end of December that revealed across-the-board problems
at Shell, which was also hit by industry-wide challenges of
delivering attractive returns to shareholders in the face of
flat oil prices and rising costs.
"Our overall strategy remains robust, but 2014 will be a
year where we are changing emphasis, to improve our returns and
cash flow performance," van Beurden said.
Those improvements would be driven by cutting capital
spending to $37 billion this year from $46 billion in 2013,
while at the same time, increasing disposals, with a target to
sell $15 billion worth of assets in 2014-15.
To keep investors happy, Shell said it would raise its first
quarter dividend by 4 percent to $0.47 per share, in a move it
touted as a sign of its ability to grow free cash flow.
Van Beurden, the company's former head of refining who has
been on the company's board for just a year, said Shell would
now abandon its previously set cash flow and spending targets.
"You can see how our returns are growing and then you can
judge for yourself whether it's a good story or not," he said,
appearing confident as he make his public debut as CEO at a
media event in London.
Other big oil companies are also struggling.
Exxon Mobil Corp, the world's largest publicly
traded oil company by market value, posted lower-than-expected
quarterly profit on Thursday while Chevron Corp issued a
profit warning earlier in January.
Shares in Shell traded 1.3 percent higher at 2,154 pence at
1527, paring earlier gains of as much as 3.4 percent.
"This is a good start, they're saying the right things, more
loudly and more quantified than we had expected," Royal Bank of
Canada analyst Peter Hutton said, adding that the increase in
the dividend was "confident" and ahead of his expectations.
Shell's warning came two weeks after van Beurden replaced
former boss Peter Voser, who had always insisted that an oil
major needed to continue to invest throughout an economic cycle.
The most high profile cancellation is this year's planned
controversial and costly hunt for oil in Alaska's Arctic seas,
reversing plans made as recently as December.
Divestments are also possible in U.S. shale interests,
global oil products and onshore Nigeria, said van Beurden, as
Shell looks to make "hard choices" across its portfolio in order
to improve its capital efficiency.
Shell has over the last eight years spent around $5 billion
searching for oil in Alaska's Arctic seas, but the company said
recent legal difficulties in addition to costs made the exercise
"impossible to justify".
The company was forced to cancel last year's Arctic offshore
drill after the grounding of a drillship in a storm in 2012 and
against a backdrop of significant environmental opposition.
"Improving profitability in oil products and North America
upstream will be a particular priority for us. We are
restructuring both these two portfolios with asset sales and
potentially further write-downs," van Beurden said.
The $15 billion of disposals targeted for this year and next
would be equivalent to around 6.5 percent of Shell's current
$228 billion market capitalisation and compared to proceeds from
divestments of $1.7 billion in 2013.
Amongst the assets Shell could put up for sale is its 23.1
percent stake in Woodside Petroleum, which it owns from
an abortive attempt to acquire the Australian oil and gas firm
in 2001. Long viewed as non-core to Shell, the stake is worth
about $6.5 billion.
Van Beurden declined to comment on specific sell-offs,
promising more information at a strategy day on Mar. 13.
Shell had already said last October that it would accelerate
disposals, and the process started this month with $2.14 billion
raised from selling stakes in projects in Australia and Brazil.
FOCUS ON RETURNS
Shell's new focus on return on capital employed is such that
it will be included in management remuneration package targets
starting this year. "Our returns are at this point in time too
low to be considered competitive," he said.
RBC's Hutton said that on a return on average capital
employed basis, Shell was in line with peers at about 11 to 12
percent, but van Beurden said the company had slipped recently.
Shell had more opportunity than others to improve that
metric, Hutton said, given that a high proportion of its capital
was employed in projects yet to come onstream or in U.S. shale
gas, where it is eyeing disposals.
Fourth-quarter earnings, excluding identified items and on a
current cost of supply basis, came in at $2.9 billion, 48
percent lower than the same quarter last year but in line with a
downgraded forecast Shell gave on Jan. 17, making the quarter
its least profitable for five years.
Chief financial officer Simon Henry flagged that like the
fourth quarter, Shell's first quarter production would be lower
due to maintenance and the expiry of a licence in Abu Dhabi,
with Bernstein analysts calling the first quarter results