Royal Dutch Shell's US shale retreat could end up being a missed opportunity. After years of sub-par returns, the Anglo-Dutch oil major plans to slash investment, cut jobs and sell assets in its North American business. BP, by contrast, announced earlier this month that it would spin off onshore US oil and gas operations into a wholly owned business with independent management.
Both companies have struggled to match the success of smaller, nimbler North American shale drillers. But BP's approach is more likely to stir up the kind of entrepreneurial spirit needed to make shale pay off.
Shell's US crude production has fallen 13 per cent since 2008, despite hefty investments in shale properties. Overall US crude production, on the other hand, is up more than 50 per cent to almost 8 million barrels a day over the same period, driven largely by booming shale output. The company's American gas production growth of 2.7 per cent also lagged overall U.S. expansion of 18 per cent since 2008. Bad timing is partly to blame. Many big oil companies overpaid for shale assets just before US prices collapsed in 2009 and 2010, making it unprofitable to develop some less productive lands.
Cultural issues also played a role and may now present the biggest obstacle to turning performance around. Oil majors are often slow and risk-averse and led by engineers who focus on technically challenging projects that take decades to complete. Successful shale production requires quicker action and an entrepreneurial mindset capable of adjusting to sudden changes in drilling conditions.
Big oil's shale operations don't necessarily need to be smaller, but they do have to become less bureaucratic. BP's plan to pool shale assets into an independent business seems a step in the right direction. It also stands a better chance of success than Shell's attempt to cut its way to profitability.
Both companies have struggled to match the success of smaller, nimbler North American shale drillers. But BP's approach is more likely to stir up the kind of entrepreneurial spirit needed to make shale pay off.
Shell's US crude production has fallen 13 per cent since 2008, despite hefty investments in shale properties. Overall US crude production, on the other hand, is up more than 50 per cent to almost 8 million barrels a day over the same period, driven largely by booming shale output. The company's American gas production growth of 2.7 per cent also lagged overall U.S. expansion of 18 per cent since 2008. Bad timing is partly to blame. Many big oil companies overpaid for shale assets just before US prices collapsed in 2009 and 2010, making it unprofitable to develop some less productive lands.
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Big oil's shale operations don't necessarily need to be smaller, but they do have to become less bureaucratic. BP's plan to pool shale assets into an independent business seems a step in the right direction. It also stands a better chance of success than Shell's attempt to cut its way to profitability.