Shell eyes return to growth

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Royal Dutch Shell  said it was planning a return to robust growth in oil and gas production after seven years of decline and unveiled strong reserves additions that should underpin longer-term growth aims.

Europe's largest oil company by market value said it was targeting output of 3.5 million barrels of oil equivalent per day (boepd) in 2012, up from 3.15 million in 2009 - equivalent to an annual growth rate of 3.5 per cent.

Italian rival Eni said on Friday it aimed to grow output by 2.5 per cent per annum to 2013 while European number two, BP, is targeting annual growth of 1-2 per cent.

"Shell's strategy announcement reinforces our view that the company is at an important turning point operationally," Gordon Gray, oil analyst at Collins Stewart said in a research note.

Shell's London-listed "A" shares closed up 1.3 per cent at 1,936-1/2 pence, just ahead of a 1.1 per cent rise in the STOXX Europe 600 Oil and Gas index.

Chief Executive Peter Voser said higher output would allow Shell to boost cashflow sharply and become cashflow neutral by 2012. Irene Himona, oil analyst at Exane said this was a year earlier than she had expected.

Shell also aims to grow output beyond 2012, although Voser said he had dropped a 2-3 per cent long-term growth target.

Shell is looking to the deep water of the Gulf of Mexico, tight gas assets in North America and liquefied natural gas and coal seam gas in Australia to support its longer-term aims.

As part of this strategy, Shell and PetroChina hope to agree a joint US$3 billion ($4.2 billion) takeover of Arrow Energy Ltd and Shell said talks with the Australia coal seam gas company were ongoing.

Previously, Shell and rivals concentrated much of its effort on expanding in Africa and Russia. Such places have big reserves but Shell has decided political risks and high taxes make them relatively less attractive than fields in the Western world.

The company said that last year it added new reserves equivalent to almost three times the amount of oil and gas it pumped.

Its reserves replacement rate of 288 per cent compares with levels of 133 per cent at industry leader Exxon Mobil and 129 per cent at BP.

It is also a turnaround from the 98 per cent Shell achieved in 2008 and the 17 per cent recorded in 2007.

"This was the best year for exploration in a decade," the company said.

Voser said high-cost, infrastructure-led projects, such as Shell's US$18-19 billion gas-to-liquids plant in Qatar and multi-billion dollar oil sands projects in Canada, would in future only supplement the exploration effort.

Shell's production strategy has been built around such large, technology-driven projects in recent years.
Nonetheless, Shell said it will have to spend US$25-US$30 billion/year out to 2014 to achieve its growth - the largest capital investment or capex programme in the industry.

Shell's focus on building production will also see it reduce its downstream footprint.

The company said it planned to exit 35 per cent of its retail markets, and repeated plans to sell 15 per cent of its world-wide refining portfolio.

- Reuters