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Shell Australia

The Wall Street Journal: Shell Australia



June 1, 2004

Posted 2 June 04


MELBOURNE — Royal Dutch/Shell (RD) has committed to operating both of its Australian oil refineries beyond 2006, putting to rest speculation it could shut at least one facility in the lead-up to the introduction of tough new fuel standards.


Shell Australia Chairman Tim Warren issued the commitment to both Australian refineries, but said the company has no intention of boosting its combined capacity of 205,000 barrels a day.


His comments came as Shell Australia reported a 5.9% fall in 2003 earnings before interest and tax of A$815 million. This compares to a profit of A$866 million for the year ended December 2002.


Higher gas sales and prices, were offset by declining oil production, a higher Australian dollar and around A$30 million of writedowns at its downstream refining arm.


The bulk of earnings came from the company’s upstream business covering exploration, production and natural gas.


Upstream earnings before interest and tax in 2003 of A$632 million were down 4.6% from A$663 million in 2002.


Capital expenditure across the unit was A$228 million in 2003, compared with A$177 million a year earlier, mainly associated with the expansion of North West Shelf liquefied natural gas capacity.


Warren expects Shell to build on these results once the fourth North West Shelf LNG train comes on stream later this year.


While gas output is forecast to rise, Warren said the company’s interest in maturing Timor Sea fields Laminaria and Corallina means Shell ‘s Australian oil production “will continue to decline.”


He said the company and its joint venture partners were working toward a final investment decision on the Gorgon gas project in Western Australia.


Warren said he is confident the Australian and East Timor governments will find a resolution to a jurisdictional dispute over the Sunrise gas fields, but said uncertainty could impact sales.


Development of the project would move more easily if customers knew there were “no obstacles” to sales, Warren said.


Shell ‘s Australian downstream operations, which include refining and marketing of fuel products, reported 2003 earnings before interest and tax of A$183 million, down from A$203 million a year earlier.


Warren said the company’s fuel sales alliance with retailer Coles Myer Ltd. (CM) was returning results, with volumes up around 30% on the year.


The underlying growth in profitability associated with the successful start-up of the Coles Myer Alliance and strengthening refining margins was masked by a combination of one-off credits in 2002 and write-offs in 2003, Warren said.


Refining margins increased due to the growth in Asian fuel demand, which has reduced the extent of surplus fuel production.


The full impact of the fuel alliance with Coles Myer will be shown in the company’s 2004 results, Warren added.


Shell’s Geelong refinery in Victoria state produces around 119,000 barrels per day, while the smaller Clyde refinery in Sydney – which had been seen as a possible candidate for closure – has an 86,000 bbl/d capacity.


Australia has total refining capacity of 874,500 bbl/d.


Separately, Warren said Shell was “very happy” with its 34% investment in Woodside Petroleum Ltd. (WPL.AU). He declined to comment on Woodside strategic issues, citing his position as a director with the Australian energy firm.


-By Eric Johnston; Dow Jones Newswires; 61-3-9614-2663; [email protected]


-Edited by Paul Godby

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