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Shell spending plans dash buy-back hopes

Financial Times: Shell spending plans dash buy-back hopes

“Royal Dutch/Shell again disappointed the markets… …it dashed hopes for a share buy-back, announcing that it would spend $45bn (€37bn) over the next three years as it seeks to repair the damage caused by its reserves scandal.”

By James Boxell in London

Posted 23 Sept 04

Royal Dutch/Shell again disappointed the markets on Tuesday as it dashed hopes for a share buy-back, announcing that it would spend $45bn (€37bn) over the next three years as it seeks to repair the damage caused by its reserves scandal.

The Anglo-Dutch oil group, which this year was forced to cut its levels of proved reserves by more than 20 per cent, told its annual strategy meeting that most of the cash would be spent on oil exploration and production.

However, analysts were unhappy about the lack of detail. One said: “They needed to show whether they had the right people in charge to fix things. I think they have failed dismally.”

Peter Nicol, at ABN Amro, said the presentation was “spoiled by the lack of clarity over where the company is really going financially”.

Shell added that it would dispose of between $10bn and $12bn of assets over the next three years, including $5bn in exploration and production.

It is already exploring the sale of its Basell chemicals venture and Intergen power unit, and said on Wednesday that it had been approached for its liquid petroleum gas business, which analysts said could be worth $1bn.

Shell said it had seen a fundamental shift in the long-term price of oil and would change the way it made investments in order to meet this.

In line with its peers, Shell currently uses a planning price of $20 a barrel to determine whether projects will be economically viable.

However, Malcolm Brinded, head of exploration and production, said that while Shell would continue to use the $20 planning price in order to screen out undesirable projects, it would assume an oil price of above $25 to decide which would be best pursued.

Jeroen van der Veer, chairman, said that Shell needed oil to remain at $25 a barrel to make sure cash income was sufficient to cover capital spending.

Mr Brinded insisted Shell would replace 100 per cent of the oil it pulls from the ground over the next five years, but much of this will come from reserves it was previously forced to rebook. Richard Rose, at Oriel Securities, said: “They are being very conservative on reserve replacement. They really need to do 100 per cent just to stand still.”

In London, Shell Transport & Trading shares fell 14½p or 3.3 per cent, to 418p.

Amsterdam-listed Royal Dutch slid 2.4 per cent to €42.27.

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