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Shell Says It Will Sell More Assets, Increase Capital Spending

Bloomberg: Shell Says It Will Sell More Assets, Increase Capital Spending

“The company settled investigations with the SEC and the U.K.’s Financial Services Authority in July. Probes by the U.S. Justice Department, the Dutch securities regulator and the Euronext stock exchange are continuing.”

Sept. 22 (Bloomberg) — Royal Dutch/Shell Group, the world’s third-largest publicly traded oil company, said it plans to sell $10 billion to $12 billion of assets in the next two years to improve profitability while it raises capital spending.

The oil and gas division of Shell, based in London and The Hague, is targeting $5 billion of divestments, dilutions and other transactions during that time, the company said in a statement on PR Newswire.

Shell Chairman Jeroen Van der Veer, 56, wants to restore investor confidence after the company disclosed in January it had wrongly accounted for a fifth of its oil reserves. That led to the ouster of his predecessor and two other top executives and $150 million in fines from U.S. and U.K. regulators.

Oil companies are piling up cash from selling assets and rising oil prices, which reached a record $49.40 a barrel in New York last month because of increasing demand and a lack of spare production capacity. Shell in the first half reported net income of $8.66 billion, up 7 percent from the year-earlier period.

Shell’s shares in London as of yesterday had gained 4 percent this year, less than a 21 percent rally at Exxon Mobil Corp. and a 19 percent gain at BP Plc. Exxon and BP are Shell’s two larger competitors.

Asset Sales

Shell is selling assets including gas stations in Spain, oil fields in Angola and pipelines in the U.S. As of July 1, it had announced plans to shed more than $3.5 billion of assets this year, almost double its original target for 2004.

Shell is paying for cost overruns at some of its biggest projects, such as a $10 billion venture to tap natural gas off Russia’s Sakhalin island, which the company is counting on to boost output later this decade.

“If additional cash is available, we will balance further high value capital investment opportunities with returns to shareholders,” Shell said in the statement.

The reserves setback increased investor concern about growth in Shell’s oil and gas unit. Shell has failed to replace its production with new reserves in four of the last five years, according to the Securities and Exchange Commission.

Shell maintained a forecast for daily output of 3.7 million to 3.8 million barrels of oil equivalent this year and 3.5 million to 3.8 million a day in 2005 and 2006. Output will rise to between 3.8 and 4.0 million barrels a day in 2009, Shell said.

Shell expects capital investment of $15 billion a year, it said in the statement. That rose from a range for this year of $14.5 billion to $15 billion given in April.

Review Due

Shell plans to report the outcome of a review of its corporate governance and century-old dual structure in November. Investor calls for changes in Shell’s structure have increased since the reserve cuts. Shell began the review in March.

Shell Transport & Trading Co. of London and Royal Dutch Petroleum Co. of The Hague are run by separate boards, an arrangement dating from their 1907 merger. Analysts such as J.J. Traynor of Deutsche Bank AG expect the company to retain its dual listing and unify its boards.

Shell’s setbacks started this year after it surprised investors by announcing in January that it had overstated its proven oil and gas reserves by 20 percent. Three more cuts followed, reducing Shell’s holdings as of 2002 by 23 percent.

The company settled investigations with the SEC and the U.K.’s Financial Services Authority in July. Probes by the U.S. Justice Department, the Dutch securities regulator and the Euronext stock exchange are continuing.

To contact the reporter on this story:

Alex Lawler in London at [email protected]

To contact the editor for this story:

Tim Coulter in London at [email protected]

http://quote.bloomberg.com/apps/news?pid=10000102&sid=aRt7hxPweCCM&refer=uk

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