Shell spends big to recoup 'lost' oil

By Christopher Hope
September 24, 2004

Shell has pledged to spend more cash on finding oil and gas over the next three years as the world's No.3 oil company admitted that its production was likely to be flat until 2009.

Shell also said it would sell $US10 billion to $US12 billion ($A14-$A17 billion) of non-core assets as part of an "urgent need" to restore its position after "losing" 4.4 billion barrels of proven oil and gas this year.

Unveiling Shell's strategy for the next three years, Jeroen van der Veer, chairman of the committee of managing directors, admitted that production "is expected to grow to between 3.8 million and 4 million barrels per day by 2009", well behind where rival BP is likely to be. Shell's output last year was 3.9 million barrels a day.

He said: "Replacing our reserves is a priority to support future growth. Everyone at Shell understands the urgent need for performance and delivery. This requires action and decisiveness in everything we do. You speak words, but this is all about action and urgency. I wish we had not gone through the last six months. Crisis is not the way to operate. We want to use this setback to show what we can do."

Shell plans to spend $US15 billion a year until 2006 on capital expenditure, with a bigger share - $US1.5 billion - going on exploration. It also hopes to sell $US5 billion of non-core fields in that time - twice the rate of 2001-03. It will also base some of its investment decisions on oil at $US25 a barrel, rather than $US20, because of surging prices.

Managing director of exploration and production Malcolm Brinded admitted that Shell's reserve replacement rate would only be 100 per cent over the next five years - less if the "lost" barrels were excluded.

He said Shell would focus on "big cat" fields - those that guarantee more than 100 million barrels of oil or gas for Shell - in 25 countries, from 40 three years ago. It planned to drill 19 big cats this year, from 12 last year and eight in 2002.

Shell was embarrassed about selling a field in North India to oil minnow Cairn Energy for a few million dollars which later yielded hundreds of millions of barrels of oil, he said, but Cairn's success accounted for only 5-10 per cent of Shell's annual output.

Shell said it had received an "unsolicited" offer for its liquefied petroleum gas business, which made $US400 million of underlying earnings last year.

Shell hinted at selected acquisitions, but Mr van der Veer dismissed suggestions it might merge with French giant Total. "The fact that (that story) can get legs shows that our reputation is not where we want it to be."



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