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. Shells challenge is to be more speedy in terms of technology implementation.
Shell, vying with BP Plc as Europes biggest oil company, said yesterday its 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 Shells 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.
Voser, speaking to analysts at the companys annual strategy briefing, outlined plans to raise oil and gas production 11 percent by 2012 to 3.5 million barrels a day. The companys 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. Im very pleased with the variety we have in the portfolio, so if one doesnt come, weve 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 Indias 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.
Last Updated: March 17, 2010 05:09 EDT