Shell fails to impress City with growth plan

The Scotsman: Shell fails to impress City with growth plan

“SHELL yesterday said it would plough $45 billion (£25bn) into the business between 2004 and 2006 to drive organic growth in the wake of the oil reserves overstatement fiasco that prompted big regulatory fines and damaged the group’s City credibility.”

MARTIN FLANAGAN

CITY EDITOR

Thu 23 Sep 2004

SHELL yesterday said it would plough $45 billion (£25bn) into the business between 2004 and 2006 to drive organic growth in the wake of the oil reserves overstatement fiasco that prompted big regulatory fines and damaged the group’s City credibility.

The company also said it planned $10bn (£5.6bn) and $12bn (£6.1bn) of disposals over the period to bolster its balance sheet and give it headroom for possible share buybacks, although the market was disappointed no firmer commitment was made to returning money to shareholders. The shares fell 14.25p, or 3.3 per cent, to 418p.

Shell, which had previously only committed itself to capital spending of between $14.5bn (£8.1bn) and $15bn (£8.4bn) this year, also confirmed it was targeting a fairly flat production rate of 3.5-3.8million barrels of oil equivalent (boe) in 2005-06.

But Malcolm Brinded, new chief executive of the exploration and production division at the heart of the 20 per cent overstatement of “proven” reserves earlier this year, said he would be “disappointed if this [oil production] was not approaching 4 million barrels of oil per day by 2009”.

He said the aim was to raise this to 4.5-5 million barrels a day by 2014, but added: “This is an aspiration, not a promise. It’s not cast in stone.”

Jeroen van der Veer, chairman of Shell’s committee of managing directors, who hosted the strategy presentation in London, also revealed that the company was using a theoretical oil price of $25 a barrel in assessing future projects.

He said there would be a sliding scale in practice, and some projects would assume oil prices of $20 and under, but that a general figure of less than $25 might lead Shell to under-invest and that would be bad for the company.

In further contrition for the 20 per cent cut in “proven” oil reserves this year, Van der Veer said: “I wish we had not had to go through the past six months.

“Crisis is not the best way to operate. But we are where we are. We will use this setback as an opportunity to show what we can do.”

Among the disposals, Shell’s liquefied petroleum gas business may be the first to go after the company revealed yesterday it had received an unsolicited, preliminary approach.

The group also said it aimed to fully integrate its oil products and chemicals businesses.

Analysts were disappointed that Van der Veer said a strong balance sheet was as important as buybacks at this stage.

“They missed a golden opportunity to announce an extension of the share buyback programme. I don’t think they’ve done enough,” ING analyst, Angus McPhail, said.

Shell’s reserves cut caused the ousting of its previous top directors, led to $150m (£84m) in regulatory fines and cost the group its “AAA” top-grade credit rating.

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