Shell to Raise Output Of Oil, Natural Gas By 30% in 10 Years

THE WALL STREET JOURNAL: Shell to Raise Output Of Oil, Natural Gas By 30% in 10 Years

Wednesday, 22 June 2005:

By CHIP CUMMINS

Staff Reporter of THE WALL STREET JOURNAL

June 22, 2005 12:32 p.m.

LONDON — Royal Dutch/Shell Group’s chief executive said the company is on track to boost oil and natural-gas production by some 30% over the next decade, as a number of big projects already in the works come on line and as Shell bolsters its exploration and production business with new finds.

Jeroen van der Veer reiterated the company’s earlier projection that Shell expects flat production in the next few years, a problem shared by some other major oil companies. But at a news conference here Wednesday, he said Shell expects to identify and develop as many as 10 super-large “elephant” projects that will boost output by 2015.

By then, Mr. van der Veer said he expects Shell to be pumping some five million barrels of oil and gas a day, up from about 3.85 million barrels a day in the first quarter of this year. That growth won’t kick in for several years, he said, noting that the increases will be “very much back-end loaded,” while for the next several years production levels will reflect a “quite horizontal picture.” But output will start building by 2008 or 2009, he said.

Mr. van der Veer also outlined a number of changes he has recently put in place to bolster the company’s troubled exploration-and-production unit. After disclosing early last year that it had greatly overstated its petroleum reserves, Shell overhauled the way it accounts for and reports its estimate of oil and gas in the ground.

Mr. van der Veer said Wednesday he recently unveiled to Shell managers a number of changes to improve its ability to find and develop oil and gas. He said he has backed merit-based budget increases for Shell’s research and technology-development departments, which come up with new ways to tap hard-to-reach oil, among other things. He didn’t specify how much he would increase the company’s current research spending of $533 million a year.

Shell will also set up an internal “commercial academy” to hone its ability to cut new development deals with host governments and national oil companies, along with a “project academy” to plan and execute big projects more efficiently.

Mr. van der Veer said he plans to appoint “chief scientists” to preside over 10 technical disciplines at Shell. The company will start benchmarking its technological innovations against those of its peers, as it does with financial and operational metrics.

Shell is the world’s third-largest publicly traded oil company by market capitalization, behind Exxon Mobil Corp. and BP PLC. BP, Shell’s closest competitor, is enjoying heady output growth from a Russian joint venture and from a number of big projects coming on stream this year and next. But Shell and many of its peers are struggling to boost output and replace reserves depleted by production.

As smaller energy companies and state-owned companies compete for oil deals, the world’s largest oil companies have largely focused on complex and expensive — but high-returning — projects. Mr. van der Veer said such projects are where “we clearly can add value.” Projects for Shell could include deep-water exploration and production projects and so-called unconventional oil projects, like recovering petroleum from oily sand deposits, he said.

Shell shareholders will vote next week to merge the company’s two parents, Royal Dutch Petroleum Co. of The Hague and London-based Shell Transport & Trading Co. under a single board with Mr. van der Veer as CEO. The combination is expected to be approved and finalized by next month.

Mr. van der Veer said that one of the benefits of the merger would be an ability to more easily issue equity and debt in complex financial transactions, for instance to fund a big acquisition. “We do not have a specific target at this time,” he said, adding though that “the history of oil is one long story of consolidation.”

Write to Chip Cummins at [email protected]

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