Shell pledges $45bn to rebuild reserves and reputation

Lloyds List: Shell pledges $45bn to rebuild reserves and reputation

“The strategic review is designed to restore investor confidence after Shell’s shock disclosure in January that it had wrongly accounted for a fifth of its oil reserves.”

Posted 24 Sept 04

Shell is lifting its capital spending to $45bn over the next three years in a bid to expand the group’s oil and gas reserves and extend its ‘leadership position’ in liquefied natural gas, writes Tony Gray.

The oil major also disclosed plans to sell $10bn to $12bn of assets between 2004 and 2006, and an approach to buy its global liquefied petroleum gas distribution and marketing business.

The strategic review is designed to restore investor confidence after Shell’s shock disclosure in January that it had wrongly accounted for a fifth of its oil reserves.

‘Replacing our reserves is a priority to support future growth,” said chairman Jeroen van der Veer

LNG is housed in the group’s gas and power business which is expected to be investing about $1.5bn-$2bn a year.

Shell is the world’s largest independent supplier of LNG and the second largest natural gas producer. The LNG business delivered a 13% annual increase in total sales in the years 1999-2004.

Sales are expected to increase to about 10m tonnes in 2004 with equity LNG capacity doubling to about 20m tonnes in 2009.

Major projects include Nigeria LNG trains 4, 5 and 6, Sakhalin II LNG, and LNG import terminals in North America.

In general, Shell expected its proven reserve replacement ratio to average at least 100% in 2004-2008, against 60% to 80% in 2004.

Production is expected to rise to 3.8m-4m barrels of oil equivalent (boe) a day in 2009, up from 3.7m-3.8 m boe this year.

Shell’s investments were expected to ‘unlock’ an additional 13bn barrels in oil reserves in the next five years.

Exploration would focus on ‘big cat’ wells with prospects of more than 100m boe. On downstream LPG, the oil major had received an unsolicited approach from an interested buyer and decided to ‘explore strategic options.’

Discussions were at ‘a very preliminary stage’ and the review was expected to take about 12 months.

Meanwhile, work already underway to structure LPG into a stand-alone global operation would be accelerated.

Shell is one of the largest players in the market, handling 4m tonnes of branded LPG annually and employing 4,000 people in 50 countries. Shell said it was currently involved in the shipment of several million tonnes of LPG by sea. Tonnage cover is normally met by either contracts of affreightment and time charters, or spot charters, depending on the trading area.

The business produced earnings before interest, tax, depreciation and amortisation of $400m.

Shell said yesterday’s announcement would have little impact on the people who trade in LPG at Shell International Trading and Shipping Co (Stasco) and may only impact on the shipping business.

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