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Shell’s long game strategy set to test the market’s patience

Daily Mail: Long game strategy set to test the market’s patience

By Brian O’Connor

Posted 24 Sept 04

SHELL is playing a long game – and testing the market’s patience. It plans £25bn capital spending to restore its oil and gas reserves and cash in on high oil prices.

New chief executive Jeroen van der Veer is stepping up the pace of disposals to between £5.6bn and £6.7bn over three years. He has had an ‘unsolicited approach’ for Shell’s bottled propane gas business. Believed to make £220m operating profits, it could be worth up to £1.7bn.

Shell is tackling its reserve shortage by hunting for ‘big cats’ – fields of more than 100m barrels. But total production will be flat, at no more than 3.8m barrels a day, until 2006. It hopes to move up to 3.8m-4m by 2009 and 4.5m-5m by 2014.

Some of this will come from ‘unconventional’ sources such as the vast Athabasca tar sands in Canada, where oil is mined from surface mud. It has 30bn barrels of what it called ‘resources’ as well as 14.4bn barrels of proven reserves.

Beset by troubles this year, Shell’s response is to stick with what it knows – heavy spending on long-term projects. Share buybacks are lower on the priority list.

Investors have been sceptical, seeing Shell as bogged down in massive, low-earning assets such as refineries. But Shell is confident it can earn good returns as oil and gas prices soar. It is assuming a long-term oil price of $25, up from $20.

Van der Veer is streamlining, merging chemicals and oil products and trimming ambitions in gas and power by selling power stations.

Analyst Peter Kitchens at Cheuvreux said: ‘They have realised the problems and are trying to grow the business.’ Mark Red way at Canaccord said it was ‘sensible, but not a quick fix’.

• The Financial Services Authority said it was confident that an independent tribunal would find it had not prejudiced the rights of ousted Shell chairman Sir Philip Watts, as he claims.

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