Royal Dutch Shell plc .com Rotating Header Image

Voser Says Shell Must Control Spending as Industry Costs Rise

Bloomberg.com


March 17 (Bloomberg) — Peter Voser, chief executive officer of Royal Dutch Shell Plc, talks with Bloomberg’s Andrea Catherwood about efforts to control spending as industry costs rise. Voser also discusses the company’s growth strategy and investments in refineries and biofuel projects. They spoke yesterday in London.

Voser Says Shell Must Control Spending as Industry Costs Rise

By Will Kennedy and Andrea Catherwood

March 17 (Bloomberg) — Royal Dutch Shell Plc Chief Executive Officer Peter Voser said industry costs have started to rise and the company will use technology to control spending as it invests $100 billion to boost production.

“Costs have not come down as much as we hoped for, and some of them are now rising again,” Voser said in an interview with Bloomberg Television broadcast today. Shell’s challenge is to be “more speedy in terms of technology implementation.”

Shell, vying with BP Plc as Europe’s biggest oil company, said yesterday it’s assessing more than 35 projects to keep production rising until 2020. Australia, where the company is developing offshore and coal-seam gas reserves, may attract as much as 40 percent of Shell’s capital expenditure. It has higher wage rates than other countries where the company operates.

“In Australia, we are doing floating LNG, which is actually fabricated in Korea, so we will be less exposed to the labor costs,” Voser said in London. We need to do “things differently in the future so that you actually save costs and get things built cheaper.”

Crude prices doubled to more than $80 a barrel in the past year, prompting producers to resume projects put on hold during the recession. Oil and gas industry spending will rise 11 percent this year to $439 billion, according to Barclays Capital. Increased investment may start to reverse reductions in drilling and engineering costs caused by the global slowdown.

Raise Production

Voser, speaking to analysts at the company’s annual strategy briefing, outlined plans to raise oil and gas production 11 percent by 2012 to 3.5 million barrels a day. The company’s capital expenditure, set at $28 billion this year, will be between $25 billion and $27 billion from 2011 to 2014.

Investment in production will be focused on three main areas, Voser said in the interview. These are Australia, the Gulf of Mexico and so-called tight gas in the U.S., where recently developed drilling techniques are used to access resources trapped between rocks.

“On top of that we have other projects in areas like Kazakhstan, like Nigeria, in the Middle East we have Iraq,” he said. “We have got a vast set of opportunities. I’m very pleased with the variety we have in the portfolio, so if one doesn’t come, we’ve got others to replace those.”

Shell yesterday announced plans to cut staff by a further 1,000 people, making the overall reduction of 7,000 in the three years through 2011. Voser has said he will cut costs by $1 billion this year, after reducing them by $2 billion last year.

The company plans to sell filling stations and oil refineries to free up capital for production spending. Shell is negotiating with India’s Essar Oil Ltd. to sell three European plants after the recession cut fuel-processing profits.

“You need bigger refineries, more complex refineries, because they can withstand recessions better than smaller refineries,” Voser said.

To contact the reporters on this story: Will Kennedy in London at [email protected]; Andrea Catherwood in London at [email protected].

Last Updated: March 17, 2010 05:09 EDT

BLOOMBERG ARTICLE

Comments are closed.

%d bloggers like this: