Low Oil Prices Take a Toll on Royal Dutch Shell in Quarter

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By STANLEY REED: OCT. 29, 2015

LONDON — Lower petroleum prices took a big toll on Royal Dutch Shell in the third quarter.

The company reported a loss of $7.4 billion, compared with a profit of $4.5 billion in the quarter a year earlier. Adjusted for inventory changes and one-time items — a more closely watched measurement — earnings fell 70 percent to $1.8 billion.

The company took about $7.9 billion in write-offs for its recently halted exploration venture off Alaska, a canceled heavy-oil project in Canada and other operations.

The financial results for the company, based in The Hague, come as the oil industry is grappling with its biggest challenges in decades. Not only must Shell and other companies adapt to the deep and potentially protracted slump in oil and gas prices, but they are also searching for an adequate response to global concerns about the role that petroleum fuels play in climate change.

Shell’s earnings from oil and gas extraction were pulled down by petroleum prices that in the third quarter averaged about 50 percent below what they were a year earlier. The company is beginning to take large write-offs as it cancels projects that no longer make economic sense in the current price environment.

Ben van Beurden, who became Shell’s chief executive in 2014, has been reviewing the company’s investment plans and shelving some of its riskier and more costly efforts.

On Tuesday, for example, Shell said it was halting construction of an expensive oil project called Carmon Creek in Alberta, Canada.

Carmon Creek was intended to produce 80,000 barrels of oil a day, a very substantial amount, by heating heavy oil underground and pumping it out, a process that requires large amounts of capital upfront but then usually produces oil for decades. Shell said it would take a $2 billion write-down on the project.

“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options worldwide, and managing affordability and exposure in the current world of lower oil prices,” Mr. van Beurden said in a statement on Tuesday. “This is forcing tough choices at Shell.”

And late last month, Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic, a $7 billion investment that Shell had pursued despite strong opposition from environmental activists. The company had long insisted that the offshore promise of Alaska made it worthwhile to bear the disapproval of environmental groups and to incur the huge costs of operating in the difficult Arctic environment.

In explaining why it decided to stop drilling for the foreseeable future, the company said that the well drilled in the Chukchi Sea this summer had shown “indications of oil and gas, but these are not sufficient to warrant further exploration.” In a statement, it also acknowledged “the high costs associated with the project and the challenging and unpredictable federal regulatory environment in offshore Alaska.” On Thursday, Shell said it was taking $2.6 billion in write-offs for Alaska.

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