Shell on Wednesday reported soaring production in the first quarter thanks to its takeover of UK upstream company BG and said it was planning for a prolonged period of low oil prices.
It added it would would not be rushed into a "fire sale" of assets to cover its sharply increased debts.
Shell's first quarter oil and gas production was up 16% on the year at 3.66 million b/d of oil equivalent, including a 522,000 boe/d increase due to the BG acquisition. Its production following the February 15 purchase averaged 3.95 million boe/d in the quarter.
"The completion of the BG deal has reinforced our strategy and strength against the backdrop of hugely challenging times for our industry," Shell chief executive Ben van Beurden said in a statement.
Shell declined to specify likely production for the current or future quarters, while noting that production had started from a seventh deepwater floating production storage and offloading facility in its Brazilian portfolio, one of the prize fruits of the BG deal.
Chief financial officer Simon Henry signalled caution on the recent oil price recovery, saying it was "far too soon to be calling a break in the weaker environment" and "I would hesitate to read into recent weeks' movements any secular trend."
"Supply clearly is declining. The US is going to be down maybe 1 million b/d this year versus last year...Demand is growing -- it's growing about 1 million b/d -- but there is a huge inventory that needs to be worked off," he told reporters.
"There are two factors that are basically unknown to us: what is the real capacity availability within OPEC that is not used today and how will that be used, and secondly what will the response be in US shale as and if prices recover?"
Shell planned to invest selectively, while cutting operating costs as if prices would stay low forever, he said.
Savings were being made on exploration and through the deferment or cancellation of projects and "we are taking costs out of projects, particular in drilling," Henry said. "In the Appomattox project for example in the Gulf of Mexico we are drilling wells quicker and cheaper."
DEBT FRET
Savings were also being made in the company's Malaysian and UK upstream operations, with costs in the North Sea already almost halved, Henry said.
"Lower for longer is certainly the mantra on investment, lower forever is the mantra on operating expense," he said.
Reducing Shell's debt levels -- now among the highest in its peer group -- was a priority, but the company's gearing level might increase before it decreased, Henry said, noting that Shell is moving around 3,000 IT jobs to the Indian tech city of Bangalore.
While Shell has said it plans $30 billion of asset sales over three years, Henry said it would not embark on a "fire sale" in the current environment and was unlikely to sell as much as $10 billion this year.
In terms of future production, he said asset sales and decline within the portfolio, together with restrictions on gas production in the Netherlands, would be offset by projects such as Stones, expected on stream this year in the Gulf of Mexico, and Gorgon, offshore Australia.
The latter has run into technical difficulties following the startup of LNG production in March, while the Netherlands has imposed restrictions on gas production due to earthquakes.
Shell is also expecting a boost from Kazakhstan's Kashagan project as soon as the end of this year, although the startup there is around a decade behind original plans.
In production terms, Shell has "quite a healthy outlook for the next three to four years," Henry said. "Our future is literally in our hands in our own portfolio and we don't need to go chasing new opportunities for a couple of years while that may in fact be quite difficult."
For the current quarter, maintenance would have an impact of 60,000 boe/d and there would be a 35,000 boe/d impact from the expiry of a production sharing contract in Malaysia and divestments, Shell said.
On its downstream segment Shell gave no direct guidance on the market outlook, while noting conditions had weakened. The company's downstream segment made a $2.01 billion profit, excluding identified items, in the first quarter, down 24% on the year.
That compared with a $1.44 billion loss in the upstream, compared with a $195 million loss a year earlier.
Shell said its capital investment this year was "trending" toward $30 billion, $3 billion lower than earlier guidance.
The company's gearing, or debt-to-equity ratio, at the end of the quarter was among the highest among its peers, at 26.1%, having been among the lowest a year earlier, at 12.4%, mainly reflecting the BG acquisition.
