– Shell (NYSE: RDS.A) (NYSE: RDS.B) today said it was entering a new period of growth, and outlined plans to sharpen up performance and reduce  costs.

– Upstream production is expected to reach 3.5 million barrels of oil equivalent per day (mboe/d) in 2012, an increase of 11% from 2009.

– In addition, the company is assessing over 35 new projects from some 8 billion barrels of oil equivalent resources (boe), which should underpin Upstream growth to 2020.

– Downstream continues to focus on profitability, with plans to exit 15% of refining capacity and 35% of retail markets, and growth investment to enhance the quality of manufacturing and marketing portfolios.

– As new projects come on stream, the company expects cash flow from operations will increase by around 50% from 2009 to 2012 in a $60/bbl oil price world, and by over 80% with $80/bbl oil prices.

CEO Peter Voser (above right) commented: “These are exciting times for Shell. We are poised to deliver a new wave of financial and production growth. We are making substantial investments in new projects to drive Shell’s financial performance going forward. Shell should be in a surplus cash flow position in 2012, after capital investment and dividend payments, assuming $60 oil prices and a more normal environment for natural gas prices and downstream.”

Voser continued: “We are moving into a delivery window across the next five years, and beyond that, we have a tremendous opportunity set for the 2015-2020 timeframe. We will put the emphasis on financial performance – cash generation and returns.

Upstream, we have built up strong foundations in activities like gas-to-liquids (GTL), oil sands and liquefied natural gas (LNG). Looking out to 2020, I expect Shell’s exploration to underpin new upstream growth, especially in North America and Australia, with additional barrels from development-led projects. Downstream, we are making substantial investments in new refining and petrochemicals capacity. Once these projects are on stream, I expect the downstream growth emphasis will switch to further strengthening our marketing for the next several years.”

Peter Voser mapped out three distinct layers for Shell’s strategy development: nearer-term performance focus, medium-term growth delivery, and maturing next generation project options.

PERFORMANCE FOCUS - Continuous improvements in operating performance, with an emphasis on safety, asset performance and operating costs, including firm plans for $1 billion of cost savings in 2010, and staff reduction of some 2,000 positions by end-2011. - Asset sales of $1-3 billion/year as Shell exits from non-core positions across the company. - New initiatives expected to improve on Shell's industry-leading Downstream by focusing on the most profitable positions and growth potential. Shell has plans to exit from 15% of its world-wide refining capacity, 35% of the company's current retail markets, and is taking steps to further improve its chemicals assets. GROWTH DELIVERY - Shell has some 11 billion boe of new oil & gas resources under construction, and selective downstream growth opportunities. This is one of the most ambitious investment programmes in the industry. - Net capital investment is expected to be $25-$27 billion/year for 2011-14, with up to $3 billion/year of asset sales, and $25-$30 billion/year of organic investment. Annual spending will be driven by the timing of investment decisions and the near-term macro outlook as Shell invests for long-term growth. - Cash flow from operations excluding net working capital movements was $24 billion in 2009. Shell expects cash flow to grow by around 50% from 2009-2012 assuming a $60 oil price and a more normal environment for natural gas prices and downstream margins. In an $80 world, 2012 cash flow should be at least 80% higher than 2009 levels. - Downstream, Shell is adding new chemicals capacity in Singapore and refining capacity in the US, and making selective growth investment in marketing. - Oil & gas production is expected to average 3.5 million boe/d in 2012, compared to 3.15 million boe/d in 2009, an increase of 11%, in line with previous guidance of 2-3% average annual growth rates, and with confidence in further growth beyond 2012. - As a result of its growth investment, Shell made proved reserves additions of 3.4 billion boe in 2009. With 2009 production of 1.2 billion boe, this resulted in a Reserve Replacement Ratio of 288%, and a total proved reserves to production ratio of ~12 years. MATURING NEXT GENERATION PROJECT OPTIONS - Shell has built up a substantial portfolio of options for the next wave of growth in the company. This portfolio has been designed to capture price upside, and minimize the company's exposure to industry challenges from cost inflation and political risk. - Exploration delivered 2.4 billion boe of new resources in 2009, including new barrels in the Gulf of Mexico, North America tight gas, and Australia. This was the best year for exploration in a decade. - In North America, Shell has made great progress with tight gas, adding 8 trillion cubic feet equivalent (tcfe) of resources in 2009, bringing the company's total to 21 tcfe (3.7 billion boe). Tight gas production increased by over 60% in 2009 to 110,000 boe/d, with potential for >400,000 boe/d from today's portfolio. - In the Gulf of Mexico, the company has established at least three new production hubs, at Vito, Stones and in the Mars area, with >150,000 boe/d production potential for Shell. - Australia should underpin Shell's next tranche of LNG developments, within a world-wide options set for a possible further 10 million tonnes per year (mtpa) of capacity by 2020, which could take Shell's total capacity to ~35 mtpa. - In Canada, we retain options for further heavy oil expansion, with the nearer-term priority on improving operating efficiency and facilities debottlenecking. - Shell's pre-FID option set for fields that could come on stream by 2020 has reached 8 billion boe of resources, with over 35 substantial new projects that can sustain growth to 2020. read more