Carrie Tait, Financial Post Published: Friday, March 19, 2010

Courtesy of Royal Dutch Shell Royal Dutch Shell PLC, under pressure from a small group of shareholders, has responded to critics’ concerns with a report detailing its activity in Alberta’s oil sands.

Royal Dutch Shell PLC, under pressure from a small group of shareholders, has responded to critics’ concerns with a report detailing its activity in Alberta’s oil sands.

Shell said it published the 17-page report because it shares many of the same environmental and economic worries expressed by the shareholders who are demanding the oil and gas giant provide greater transparency with respect to its operations in northern Alberta.

“All aspects of oil price outlook, oil demand, regulatory framework, cost of CO2 and industry cost structure” are “taken into account when … investment decisions are considered,” Shell said in the easy-to-read document.

“When we assess the economic attractiveness of our major projects we include an expected future price for green house gas emissions (‘carbon price’) over the full life of the project,” Shell said. “Shell includes the expected carbon price in its economic assessments, which is higher than the current carbon price [of $15 per tonne for every tonne emitted above a certain reduction target] in Alberta, anticipating that potential future greenhouse gas regulation could lead to a higher carbon price.”

Shell expects to pay between US$2-million and US$3-million in Alberta for its carbon emissions in 2009, but did not provide further financial details regarding its carbon price predictions.

The company also talked about reclamation, the process of rebuilding the hills, forests, wetlands, and fens that are torn up as companies mine for bitumen. Shell takes a provision on its balance sheet for this process, booked as land is disturbed and reflecting the discounted value of the expected future costs.

Shell expects to spend between 3% and 5% of operating costs on reclamation, which it considers before starting a project, the report said.

Other financial, environmental, and social concerns were addressed in the online report. Shell’s oil sands operations churned out 78,000 barrels of oil per day in 2009 and it expects that to hit 150,000, or 4% of its total production, in the next few years. Mining is its primarily extraction method.

FairPensions, a British lobby group, rustled up enough shareholder support to get a resolution on the ballot at Shell’s upcoming annual meeting demanding more disclosure. It is almost certain that the resolution will fail.

But despite the resolution’s long odds, FairPensions attracted considerable media attention on both sides of the Atlantic, to the point where a British MP has tabled a resolution in the House of Commons asking the MPs’ pension fund to side with FairPensions.

Shell explicitly said its report is in response to the resolution.

“We’re quite cheered that Shell has taken a look at the resolution and decided it has some merit,” Duncan Exley, a spokesperson for FairPensions, said. “We need to look through [the report]…with our partners” before deciding whether it meets their disclosure demands.

BP PLC is facing the same shareholder resolution.

ctait@nationalpost.com

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Boston Common is one of more than 140 institutional investors supporting a shareowner resolution asking Shell to report on the strategic risks of Canadian oil sands investments in the face of “future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods.”

Daily Telegraph

Last updated: March 11th, 2010

An area near Fort McMurray, Alberta, Canada, where oil sands are believed to lie

The group of investors vociferously trying to persuade BP and Shell to re-evaluate their potential investments in the Canada tar sands has now enlisted a group of MPs in Britain to propose an early day motion questioning the project’s financial viability.

The move is part of a pretty well-coordinated campaign mobilised by FairPensions (members: ActionAid, WWF and a number of trade unions). This year, the rebels have managed to get enough shareholder support to submit motions to the oil companies’ annual meetings against the Alberta prospects, which environmentalists argue will be responsible for high levels of carbon dioxide emissions.

Shareholders obviously have a perfect right to kick up a fuss about investments they’re not keen on. Around 25pc of the FTSE-100’s dividends are paid out each year by BP and Shell, so the importance of these two companies’ decisions to UK pensions cannot be under-estimated.

However, it does seem slightly disingenuous that FairPensions is trying to claim that a big reason for their concern is the economics of the projects. They question the margins that will be made by the oil companies and warn of possible high legal fees from environmental challenges, plus the rising costs of climate change legislation.

But if they were so concerned about the right economic decisions being made by companies like BP, they would be having a look at its portfolio of renewables and “other” unit, which made a stonking $2.3bn loss in 2009. Yet there seems to be no issue with wind, solar and biofuels: all eco-friendly, low-carbon projects that are undertaken to improve the company’s green image and prepare for a future of heavier regulation of emissions/higher financial penalties, rather than turn an immediate profit.

What’s more, if you look at an investment like BP’s Project Sunrise, it represents a low proportion of the company’s overall capital expenditure. It is currently planning to spend $1.25bn on the venture over the next few years out of a total $20bn yearly budget on exploration and new projects. If given the go-ahead, BP’s oil sands will only be pumping out 60,000 barrels out of 4m barrels per day by 2014 – around 1.5pc of overall output.

I’m not taking sides on the environmental controversy of this debate. BP claims the extra carbon dioxide emissions of Project Sunrise – from well to wheel – will only be an additional 5-15pc. The campaigners put this figure at a much higher 12-40pc.

It’s just that all the talk about the oil sands’ profitability seems to obscure this real purpose of this argument – do the tar sands pose an unacceptable environmental risk and how much do we care about it? Obviously the economics of the project are borderline unless oil stays in the $80-100 per barrel range, confirmed by the fact that Shell’s Peter Voser has decided to slow the pace of investment at the moment to concentrate on conventional reserves.

But it is highly unlikely that BP and Shell would have been examining these prospects if there were not a probability that they could make some money and they will be subject to the same financial feasibility tests as every other investment – there would be little point in them wasting all this time and money just to spite the environmentalists. And I somehow doubt that the campaigners would be putting all this effort into an anti-tar sand campaign if the projects were the cleanest form of crude extraction in the world.

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Lobbyists bid to turn RBS, BP and Shell annual meetings into green referendums

Tar sands are shaping up to be the thorn in BP (BP-) and Shell’s (RDSB) sides as concerns over potential expense prove almost as rife as worries over the environmental impact.

REUTERS

Shell oil sands costs rise again, partner says

* Athabasca oil sands expansion’s costs rise to $14.3 bln

CALGARY, Alberta, Feb 25 (Reuters) – The cost of a 100,000-barrel-per-day expansion of Royal Dutch Shell Plc’s (RDSa.L) Athabasca oil sands project has climbed to $14.3 billion, Chevron Corp (CVX.N), one of its partners, said in a filing.

The new estimate amounts to $600 million more than the estimate provided by Chevron a year earlier.

Chevron, which hold a 20 percent stake in the oil sands mining and upgrading project, said the expansion will boost output to 255,000 barrels per day.

The cost of completing the project has steadily climbed well beyond Shell 2006 estimate of between C$10 billion and C$12.8 billion ($9.4 billion to $12 billion). Just a year ago, Chevron pegged the cost of the project at $13.7 billion.

A spokesman for Shell declined to confirm Chevron’s estimate.

Over the years, cost overruns have been widespread for the massive projects needed to tap the oil sands, the largest crude reserves outside the Middle East.

However, rival producers in the region said costs have fallen during the past year, mostly because of reduced labor costs. As most projects were rejigged, delayed or canceled because of the financial crisis, the squeeze on a limited pool of skilled labor has eased.

Chevron’s filing did not say why it had boosted its cost estimate for the project.

Shell owns 60 percent of Athabasca, with Chevron and Marathon Oil Corp (MRO.N) each holding 20 percent. The project includes an oil sands mine near Fort McMurray, Alberta, and an upgrading refinery near Edmonton. ($1=$1.06 Canadian)

(Reporting by Scott Haggett)

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Oil firm will sell 15% of refinery operations and slow down tar sands projects as fourth-quarter profits fall by 75%

Sunday Telegraph

BP expected to exend gap with Shell in the battle of oil giants

The British oil major, now the biggest in Europe, is currently winning the race against its Anglo-Dutch rival

By Rowena Mason
Published: 8:12PM GMT 30 Jan 2010

Royal Dutch Shell is likely to endure more humiliation at the hands of BP this week, when it posts profits an estimated $1.7bn lower than its rival.

BP, which recently stole Shell’s crown as Europe’s largest oil company by market value, is likely to report profits of $4.6bn (£2.9bn). This 80pc up from $2.6bn in the last quarter of 2008 on a “replacement cost basis – a measure used by oil companies to strip out the effect of changing inventories.

BP is reaping the harvest of an aggressive $4bn cost-cutting drive that began before the recession and doubled in pace last year.

Meanwhile, analysts have been downgrading the forecasts for Shell’s profits over concern that its refining business has been performing below expectations.

According to consensus estimates, it is likely to report that profits have fallen to $2.9bn from $4.8bn in same quarter of the 2008, when it reports on Thursday.

Shell started cutting costs much later than its rival, resulting in 5,000 job losses during the downturn.

Its chief executive Peter Voser warned last week at the Davos economic summit that there were likely to be more redundancies this year.

“It’s normal in any business that you have to go further and you have to operate your operating expenditure in a very tough way,” he said, sounding a cautious note on global recovery. “As part of that, it may also mean that some more people have to go.”

Both the companies’ profits are expected be down sharply for the year – in the case of BP, 40pc lower at $15bn, and more than 60pc down at $11.4bn for Shell.

The first US oil company to report, Chevron, showed on Friday the difficulty of maintaining healthy profits when refining margins remain low, with hefty losses in that division.

The corporation posted a 37pc fall in quarterly profits, as the cost of producing petrol and diesel prices failed to keep up with a big rise in the cost of crude oil.

The second-largest oil company in the US made a net profit of $3bn between October and December, down 37pc from in 2008.

Data from BP shows that companies are now making just $1.49 per barrel of petrol product, compared with $5.19 a year ago.

Downstream divisions – responsible for refining, marketing and selling petrol-based products – are expected to suffer at all the majors, owing to lower demand in the recession. Many oil companies are frantically trying to offload their refineries, concerned about overcapacity in the industry.

Shell is in the process of selling its UK-based Stanlow refinery in Cheshire to Indian company Essar and three others in Europe.

A higher oil price of $76.13 in the fourth quarter – almost a third above last year – will have supported profits in the exploration and production arms.

But BG Group, the oil and gas producer, is still likely to report pre-tax profit of £1.05bn on Friday – down 10pc from £1.16bn a year earlier, with annual profits 23pc below last year’s £4.1bn.

Analysts often see discrepancies between BP and Shell’s performance as merely part of the cycle of rivalry between the two companies.

BP rose by 19pc on the stock market this year and boosted production to 3.9m barrels, while Shell fell by 3pc and saw its output drop below 3m barrels.

“Shell began restructuring last year, so is lagging BP, and furthermore its massive capex expenditure in recent years does not see new volumes start to kick in until 2011-2012,” said Richard Griffith, an analyst for Evolution Securities. “On balance, earnings won’t look great when they’re announced but we see more scope for positive surprises at BP and less dividend risk.”

Most industry experts are more concerned with the expected dash for new production assets in the aftermath of the recession than any temporary drop in profitability.

Citi analyst Mark Bloomfield said: “We expect the focus to shift from a defensive cost-saving mode towards pursuit of opportunities for expansion.”

This shift in emphasis towards new projects has led some City investors to favour Shell over BP.

Mr Voser has promised that Shell would commit to record capital expenditure. It is forecast to see a boost in output from European gas and Nigeria this year and, looking to 2013 and beyond, it will see new prospects at its Qatar gas-to-liquids project, and the Canadian oil sands come on stream. The company has staked its future on a number of technically difficult fields, including unconventional reserves in Canada and deepwater projects in the Gulf of Mexico and Brazil.

BP will also increase production over the next couple of years and is exploring deep drill sites in the Gulf of Mexico and under the Arctic ice.

However, it lacks its competitor’s big flagship projects to lift future output.

Sunday Telegraph Article

Shell May Cut More Jobs as Energy Demand Recovery Remains Muted

January 29, 2010, 07:22 AM EST

By Fred Pals and Francine Lacqua

Jan. 29 (Bloomberg) — Royal Dutch Shell Plc, Europe’s second-largest oil company, may need to cut more jobs this year to control operating costs as a recovery in energy demand waits until the second half.

“It’s normal in any business that you have to go further and you have to operate your operating expenditure in a very tough way,” Chief Executive Officer Peter Voser said in a Bloomberg Television interview in Davos, Switzerland. “As part of that, it may also mean that some more people have to go.”

Voser took over from Jeroen van der Veer in July and complained that Shell’s operations had become “too complex.” Voser merged units and cut about 5,000 jobs, including senior management posts. About 15 percent of Shell’s refining capacity was placed under review, while the company is also scaling back expansion in production from Canadian tar sands.

Swiss-born Voser inherited the industry’s biggest spending program in 2009, amounting to $32 billion, in the middle of a global economic crisis that forced oil companies to delay some projects and cancel others. Shell cut operating costs by about $1 billion in the first nine months of last year.

“I’m a little bit more cautious on the recovery,” Voser said. “We still see some effects from the stimulus package into 2010, some of the consumption-driven demand is not coming back, so I’m rather more pessimistic for the first half of the year than I am maybe for the whole year or the second half.”

Voser’s Priority

Voser’s priority is to revive production growth with new projects in Qatar and Malaysia after output fell below 3 million barrels of oil equivalent a day. Shell has spent billions of dollars on unconventional oil projects such as the gas-to- liquids plant in Qatar and is also venturing into Iraq with exploration and production deals.

Shell is looking at Venezuela, Voser said. “We are studying the bids which are now coming into the wider domain in Venezuela, and we will decide if we bid or not in the future,” he said.

Venezuela’s oil ministry is taking offers from companies that paid $2 million each to bid for the minority stakes in three new projects that will pump and refine oil from the Carabobo areas of the Orinoco Belt. The winners will get a 40 percent stake in the projects.

–Editors: Will Kennedy, John Buckley.

To contact the reporters on this story: Fred Pals in Amsterdam at +31-20-589-8563 or fpals@bloomberg.net

To contact the editor responsible for this story: Guy Collins at +44-20-7330-7521 or guycollins@bloomberg.net

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