Reuters – Royal Dutch Shell said on Monday it had agreed to sell stakes in a gas project in Western Australia for $1.14bn as part of the oil company’s drive to improve its return on investment.
Shell said it is selling an 8% stake in the Wheatstone and nearby Iago gas fields as well as a 6.4% stake in the related Wheatstone liquefied natural gas (LNG) project to the Kuwait Foreign Petroleum Exploration Company (KUFPEC).
The move raises KUFPEC’s holding in the Chevron-led LNG project, in which the state company is already a partner, to 13.4%.
“We are making hard choices in our worldwide portfolio to improve Shell’s capital efficiency,” Shell chief executive Ben van Beurden, who took over two weeks ago, said in a statement.
“We are refocusing our investment to where we can add the most value with Shell’s capital and technology,” he said, adding that the company would remain a major player in Australia’s energy industry.
KUFPEC is focused on using OPEC member Kuwait’s oil wealth to diversify into energy projects abroad. Wheatstone, one of the super-sized Australian LNG projects due to come on stream over the next few years, is about 25% complete.
With some 80% of its future production committed to Asian buyers, the project is scheduled to cost about $29bn. Chevron expects capital spending on it to peak this year.
Shell issued a “significant” profit warning for the fourth quarter on Friday, in which it detailed across-the-board problems, less than three months after its third-quarter profits undershot analyst forecasts.
Analysts and shareholders said the company’s weak results would push the world’s number-three investor-controlled energy firm to keep a tighter control on costs after it said 2013 capital expenditure would peak at about $45bn.
Since van Beurden began working alongside outgoing boss Peter Voser at the start of the fourth quarter, the company has cancelled plans to build a gas-to-liquids plant in the United States, raising investor hopes of a tighter spending regime.
Shell’s Arrow Energy joint venture with PetroChina Co Ltd in Australia said on Monday it had carried out a “review of staffing levels as it manages costs,” declining to confirm reports it may cut 600 jobs, or half its workforce.
The cost cutting bolstered speculation that Arrow’s proposed a $20bn LNG project in Queensland may be shelved in favour of selling gas to one of three rival projects in the state as costs have soared amid an LNG construction boom.
Arrow said it “will continue to assess development options, including collaboration opportunities, as it looks to develop significant gas reserves.”
Shell is not the only big energy company facing increasing investor pressure to hold down spending as costs rise and prospects for higher oil prices wane.
At $1.14bn, the Wheatstone disposal kicks off a year in which Shell said it would significantly step up disposals to keep cash flowing in.
Recent media reports have suggested the company’s divestments could total $15bn this year, equivalent to around 6.5% of its $232bn market capitalisation.
“The thing that Shell has to do is accelerate divestments and re-instill capital discipline so in that vein it’s positive,” Santander analyst Jason Kenney said.
Analysts and bankers say another of Shell’s Australian assets, its 23.1% stake in Australian group Woodside Petroleum – worth over $6bn at current prices – could be put on the block.
Shares in Shell traded down 1% at 2,153 pence at 0939 GMT, underperforming Britain’s blue-chip index.
Chevron has a 64.14% stake in Wheatstone, which is due to come on stream in 2016. The other stakeholders are Apache Corp with 13% , Tokyo Electric Power Co with 8% and Kyushu Electric Power Co with 1.4%.