Shell CEO Expects Output to Increase 30% Over Decade

THE WALL STREET JOURNAL: Shell CEO Expects Output to Increase 30% Over Decade

By CHIP CUMMINS
Staff Reporter of THE WALL STREET JOURNAL
June 23, 2005; Page A3

(See Corrections & Amplifications item below.)

LONDON — Royal Dutch/Shell Group’s chief executive said the company is on track to boost oil and natural-gas production about 30% in 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 in a news conference here yesterday, he said Shell aims to identify and develop as many as 10 large projects that will boost output by 2015. Shell is developing three such projects, with some new production expected as early as this year.
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Mr. van der Veer didn’t specify how Shell would find all the projects or where they might be. He characterized such projects as requiring multibillion-dollar investments, and said they also could include “downstream” deals, related to businesses such as refining, not just production projects. Such big projects are becoming more common among superlarge oil companies like Shell as they compete with state-owned companies and smaller producers for new hydrocarbon sources.

By 2015, Mr. van der Veer said, he expects Shell to be pumping the equivalent of five million barrels of oil 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.” 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 yesterday he recently unveiled to Shell managers changes to improve its ability to find and develop oil and gas. He said he has green-lighted 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. The company will start benchmarking its technological innovations against those of its peers, as it does with financial and operational metrics.

Shell shareholders will vote next week to merge the company’s two parents, Royal Dutch Petroleum Co. of The Hague, and London’s Shell Transport & Trading Co., under a single board.

Write to Chip Cummins at [email protected]

Corrections & Amplifications:

Royal Dutch/Shell Group’s 2005 research budget is $553 million. This article incorrectly said the budget was $533 million.

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