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Bloomberg retracts claim that Shell will overtake BP in Production

Bloomberg has published a revised version of its article “Shell Output Set to Pass BP With $40 Billion Spent on Projects“.

In response to the outcry in articles published on royaldutchshellplc.com accusing Bloomberg of publishing false information about Shell oil and gas output, claiming that it would “overtake BP”, Bloomberg has issued a corrected article printed below.

What was the involvement of Shell in the extraordinary false claim? The retraction of a market changing statement has been slipped out as a correction to the original article rather than a new article. This means that it is not getting the same news exposure as the false claim.

Blomberg.com

Shell May Increase Output at a Faster Rate Than BP (Correct)

By Fred Pals

(Corrects headline and first and second paragraphs to show that Shell may increase output at a faster rate but won’t overtake BP in overall production, in story originally published on Sept. 25.)

Sept. 25 (Bloomberg) — Royal Dutch Shell Plc, held back by almost seven years of falling production, may increase output at a faster rate than BP Plc after investing about $40 billion from Qatar to Brazil.

Shell will add 1 million barrels a day to capacity by the end of 2012, representing an average annual growth rate for oil and gas output of 2 percent to 3 percent between 2009 and 2012. That compares with growth of 1 percent to 2 percent at BP. Both estimates take into account the impact of natural field depletion.

Record investment in 2009 let Shell Chief Executive Officer Peter Voser expand programs including an oil-sands venture in Canada and the Sakhalin II project in Russia’s Far East. The outlook may help revive Shell’s London-listed shares, which have fallen this year even as competitors like BP gained.

“Shell will have so many startups in the coming five years that it will be impossible for European peers like BP to keep up,” said Peter Heijen, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV. He recommends buying Shell and predicts the stock will climb by 14 percent during the next year. “Shell has the biggest spending program and that is paying off.”

Shell, which reiterated the targets in a presentation yesterday, is Europe’s biggest oil company by market value, yet trails BP in production after militant attacks hurt operations in Nigeria. The exploration and production division is the top earner for oil companies. Its output growth estimates include an annual decline rate of 5 percent.

The Hague-based Shell’s output averaged 3.25 million barrels of oil equivalent a day last year, while BP pumped 3.84 million. BP, which reversed two years of falling production in 2008, pushed output above 4 million in the second quarter. BP anticipates output of 4.1 million barrels a day in 2012, including an unspecified decline rate.

Stock Performance

Shell is down 0.7 percent this year, underperforming a 3.9 percent gain for BP. Crude oil futures in New York have rebounded 49 percent since January.

Following a reserves scandal in 2004 when the company was forced to slash its proven reserve estimates, Shell accelerated investments into so-called unconventional projects such as a gas-to-liquids venture in Qatar.

Total, Exxon

Total SA, Europe’s third-biggest oil producer, predicts output will fall this year and expects projects in Africa to help boost production an average of 2 percent through 2014. Exxon Mobil Corp., the largest U.S. oil company, warned it may not meet a 2 percent production growth target this year. It still plans to boost output an average of 2 percent to 3 percent annually during the next half decade, Senior Vice President Mark Albers said Sept. 9.

Shell’s share of the Sakhalin II project in Russia will total 108,000 barrels a day of crude at peak production, while Athabasca will add another 60,000 barrels of oil equivalent a day from 2010. Liquefied natural gas projects in Qatar, Russia and Australia will boost output capacity to almost 26 million tons a year from 18.5 million tons in the second quarter once the Gorgon project starts in 2014.

“The projects are enormous and it remains to be seen whether they can deliver on the growth target,” said William Andrews, who holds Shell and BP stock among the $7 billion in assets he helps manage at C.S. McKee & Co. in Pittsburgh.

Debt Concerns

Increased output at Shell will come at the price of higher debt, which is estimated by Standard & Poor’s to exceed $35 billion by the end of 2010.

Expenses doubled between 2004 and 2008. The company estimates that Sakhalin II will cost $20 billion, while the Pearl GTL venture in Qatar required investment of as much as $18 billion. The expansion of the Athabasca oil sands development may cost as much as $11.6 billion.

“Though Shell has some material projects starting up in the next few years, it also has a chunk of its production in high-cost resources,” said Ivor Pether, a senior fund manager who helps manage the equivalent of about $9.9 billion at Royal London Asset Management. “The market naturally has some concerns about the high capex and rise in debt.”

Gearing, or the ratio of debt to equity, is set to triple by year-end as the company invests a record $32 billion. Voser pledged to cut capital expenditure in 2010 by about 10 percent and implement “substantial” job cuts after oil prices fell from last year’s record and the recession eroded demand.

S&P cited the prospect of “very sizeable debt increases” this year and next when it cut Shell’s long-term credit rating one step to AA, the third-highest investment grade, this month.

No Impact

The downgrade will have “no material impact” on Shell’s funding needs, said David Williams, a company spokesman, adding that the “balance sheet is a tool we’re using to underpin the investment program through the cycle.”

At the same time, S&P recognized that Shell’s cash flow is set to improve by 2011 to 2012 because of “forecast major contributions from various large projects.”

Shell has a 30 percent stake in the QatarGas4 project, which will have peak production of 280,000 barrels of oil equivalent a day. The Perdido deepwater project in the Gulf of Mexico and the floating oil production unit at the BC-10 field in Brazil will add another 96,000 barrels of oil equivalent a day to output. Shell, the operator of both projects, has a 35 percent stake in Perdido and a 50 percent interest in BC-10.

Shell owns Pearl GTL, which will process 320,000 barrels of oil equivalent a day into 140,000 barrels of gas-to-liquids products and 120,000 barrels a day of ethane.

“Shell is clearly a must own stock by mid 2010,” Alexandre Weinberg, a Brussels-based analyst at Petercam SA, said in a note to investors in August. “These assets should generate massive cash flow, while their plateau production characteristics should lower the decline rate from the current 5 percent to 4 percent.”

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected]

Last Updated: September 28, 2009 13:29 EDT

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