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Shell toughens local project hurdles

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Screen Shot 2015-07-31 at 19.22.09Matt ChambersResources Reporter: Melbourne: 31 July 2015

Oil major Shell has laid down tougher hurdles for its Australian projects including Browse LNG off Western Australia and Arrow coal-seam gas in Queensland.

It has cut the oil price at which new projects need to go ahead and flagged a major LNG project ­pipeline overhaul if its planned $91 billion takeover of BG Group is successful.

Shell chief executive Ben van Beurden said the company would require projects to be profitable near $US50 a barrel of oil, down from previous indications of ­between $US70 and $US90.

He also said there would be a big reduction in Shell’s planned project pipeline if the BG takeover deal was cleared next year, as ­targeted.

“Both companies have very attractive pre-FID (final investment decision) options in LNG – for example, around Australasia, the US Gulf Coast, in Canada and East Africa – and the combination of these two companies offers the opportunity to review this entire option set, and the time and pace of the investments.”

The company is planning 6500 staff and direct contractor reductions in 2015. Mr van Beurden would not say where the cuts were being targeted.

Asset sales are also heavily on the agenda, with Shell having identified more than $US30bn ($41bn) of its assets for potential sale, chief financial officer Simon Henry said.

On Browse, where operator Woodside Petroleum this month announced final engineering studies on a floating LNG project and a target of a 2016 investment decision, Mr van Beurden remained optimistic.

“I think it is all going well and it has the potential to be a very ­attractive project,” he said, adding there would be no problem ­making a final investment decision on Browse before the Prelude floating LNG project, which uses a similar design, started.

Mr Henry said the investment decision would depend on getting costs down. “The bigger question for a 2016 FID is the dynamic ­nature of decision-making as we take the oil price environment and the supply chain and the cost level into account.”

He said in Shell’s portfolio alone Browse was competing with the LNG Canada project and the Elba LNG project in the US, as well as deepwater Gulf of Mexico and Brazilian projects, and chemicals projects.

“There’s some quite large investment decisions that are on the table in the next 18 months, but only if we get the right returns and cost levels,” Mr Henry said.

Shell was more downbeat on the outlook for oil prices than in earlier briefings this year, when it was confident prices would return to levels above $US70 a barrel.

“Today’s oil price downturn could last for several years,” Mr van Beurden said.

This article first appeared in The Australian Business Review.

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