ConocoPhillips and Shell outline billions of dollars in cuts

Two of the world's largest energy groups, Royal Dutch Shell and ConocoPhillips, have set out plans for billions of dollars worth of cuts in their investment programmes in response to the plunge in crude prices.

The cuts are part of a wave of reductions in capital spending announced by oil companies worldwide as they move to shore up their finances and protect dividends as cash flows are squeezed. The cuts have increased expectations that prices will rebound in the future as supply growth slows.

BP has said it will cut 300 staff and contractor jobs from its 3,500-strong North Sea business and freeze salaries across the company in an attempt to cut costs. It has also sold down its equity interests in two massive Gulf of Mexico oilfields and relinquished its position as operator.

French major Total announced earlier this month that it planned to reduce group-wide capital spending by 10 per cent this year and speed up billions of dollars in asset disposals.

Though Shell and Conoco were both expected to follow suit, they differed sharply in the speed of the responses they announced on Thursday.

Shell, the largest European oil group, said it would "curtail" its capital spending by $15bn over 2015-17, representing 40 projects that would be delayed or cancelled.

Its spending for this year, however, is set to be only slightly lower than the $35bn it spent in 2014.

Conoco, the largest US exploration and production company, said it planned a much steeper 33 per cent cut in its capital spending this year to $11.5bn, $2bn less than it had suggested in its previous guidance issued only last month.

Occidental Petroleum, the fourth-largest US oil producer by market capitalisation, also said it would cut this year's spending by 33 per cent.

The companies set out their plans as they reported earnings for the fourth quarter of last year, hit by the steep fall in crude prices since the summer.

Ben van Beurden, Shell's chief executive, stressed the company was "taking a prudent approach here".

"We must be careful not to overreact to the recent fall in oil prices," he said. Over time, he said, supply and demand would come back into balance and prices recover.

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As a sign of Shell's continued commitment to exploring for new oilfields, he pledged to resume drilling in the Arctic, one of the highest cost frontiers. The company plans to drill this summer in the Chukchi Sea north of Alaska.

The plan prompted a fierce response from Greenpeace, which said Shell was taking "a massive risk doggedly chasing oil" in the "pristine" Arctic.

Mr van Beurden also urged the UK government to cut taxes on revenues from the North Sea, where some fields had become uneconomic: "It needs to be looked at as the tax position is hindering viability."

Excluding exceptional items, Shell's profits for the fourth quarter of last year were weaker than expected at $3.26bn. But they were 12 per cent higher than a year ago, reflecting the unusually weak fourth quarter of 2013 when the company was forced to issue its first ever profit warning. Its shares fell 4.3 per cent to £20.60 in London on Thursday.

Conoco reported a 57 per cent drop in its underlying earnings per share for the fourth quarter to 60 cents, slightly ahead of analysts' expectations.

However Ryan Lance, chief executive, acknowledged that the 2014 results "may seem overshadowed" by the outlook.

Conoco said the capital spending cut would affect its growth, with production from continuing operations outside Libya likely to rise 2-3 per cent, compared to its target of 3-5 per cent.

For 2014 as a whole, Conoco's cash flow from operations of $16.6bn was exceeded by its capital spending of $17.1bn, meaning that it had to sell assets and borrow more to cover the shortfall and pay its dividend.

The fall in oil and gas prices means that its revenues will be squeezed further this year, and Mr Lance implied that capital spending would continue to exceed cash flows for a couple of years. He said Conoco wanted to stay on track for cash flow neutrality in 2017.

The company also reiterated its intention "to significantly reduce its unconventional exploration" programmes in new frontier areas for US shale oil.

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Conoco said its fourth-quarter loss was $39m against a profit of $2.5bn a year earlier. Its shares fell 1.2 per cent to $61.83 in afternoon trade in New York.

For Shell, investors and analysts focused on the disappointing fourth-quarter earnings figure. The key miss was in the upstream division, a result of higher taxation and a swing into loss for the group's US business, which was hurt by the slide in crude.

Iain Reid at BMO Capital Markets said that while Shell's rigorous approach to cost-cutting was bearing fruit, the group "may be saving some of its firepower for later in the year" while it sees what happens to oil prices.

Chris Wheaton, analyst and fund manager at Allianz Global Investors, said: "Tapping on the brakes isn't enough. Shell needs to be clear on just what its baseline targets are."

The company kept its fourth-quarter dividend stable and said it would hold the payout steady for the first quarter of 2015.

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