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Parlous state of Shell’s oil exploration business

Financial Times: “While Royal Dutch/Shell has been grappling with its corporate structure in the wake of the scandal over its overbooking of reserves, attention has been drawn away from the parlous state of its oil exploration business.”

20 Sept 04

While Royal Dutch/Shell has been grappling with its corporate structure in the wake of the scandal over its overbooking of reserves, attention has been drawn away from the parlous state of its oil exploration business.

Wednesday’s strategy review will give the Anglo- Dutch group the opportunity to show how it is getting back to the fundamental business of finding oil. Its reserve replacement rate – the level at which it replaces the oil that it pulls from the ground – is running at a deeply unimpressive 60-80 per cent this year. The company is aiming to get this back up to 100 per cent over the next five years.

Analysts will be looking for evidence that this is possible from key projects in places such as Malaysia, Morocco and Nigeria. They will also be looking for any more news on asset disposals, such as Shell’s stake in Basell, its chemicals business, and Intergen, its power business.

Investors are not expecting many new details on the ongoing review of Shell’s corporate structure, which it expects to complete in November. However, some discussion of the restructuring may be inevitable. Shell is planning at least to combine its Dutch and British boards, but has been considering more radical measures such as some form of combination of the Royal Dutch and Shell Transport companies.

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