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Shell steps on the gas with plan to raise output by 40 per cent

The Independent (UK): Shell steps on the gas with plan to raise output by 40 per cent

Thursday 23 June 2005

By Michael Harrison, Business Editor

23 June 2005

Shell plans to exploit the new era of high oil prices by raising output by more than 40 per cent over the next 10 years to about 5 million barrels a day, by which time it could be a bigger producer of gas than oil.

The company also announced that it plans to appoint a “Mr or Mrs CO2” to spearhead its efforts to tackle greenhouse gas emissions and create a new future energy forum within Shell to drive the growth in renewable power such as wind and solar.

However, Jeroen van der Veer, Shell’s chief executive, ruled out a big increase in the company’s renewable activities between now and 2015, saying that for the foreseeable future green energy would remain too expensive for consumers to justify major investment.

Mr van der Veer was speaking before the historic vote next week when British and Dutch shareholders will be asked to approve the transformation of Shell into a single company with one board, one chief executive, one stock market listing in London and a unified headquarters in The Hague.

The details of Shell’s 10-year plan were given to senior executives in Houston last month. But yesterday was the first time the company had spelt them out in public.

As part of the cultural change within Shell which will accompany its structural overhaul, the company will appoint chief scientists in 10 key disciplines such as geology, expand its $553m (£304m) research and technology budget, hire at least 1,000 new exploration and production specialists and encourage existing staff to remain in their posts for longer rather than moving jobs every two or three years.

The increase in production from 3.5 million barrels a day to 5 million will be achieved through greater concentration on “Big Cat” fields – those classified as containing more than 100 million barrels – and increased exploitation of “unconventional” hydrocarbons, such as gasification, oil sands and oil extracted from very deep waters. Mr van der Veer said, for instance, that the number of barrels produced from oil sands – a process whereby bitumen-coated sand is processed and turned into light synthetic crude – would increase from 155,000 barrels at present to 500,000.

The company also intends to increase the number of so-called “Elephant” projects in which it is involved – ones involving investment of several billion dollars – from three to 10. Current Elephant projects include Sakhalin Island in Russia, Nanhai in China and Bonga in Nigeria.

Shell’s current production is split 60:40 in favour of oil but Mr van der Veer said the result of its 10-year strategy could be that gas overtakes oil. “I don’t exclude being a majority gas producer by 2015,” he said.

Mr van der Veer said he expected oil prices to remain higher over the next decade than over the previous decade. But he said the key to the company’s ability to exploit new reserves, in particular through unconventional means, depended as much on the local taxes and royalties it had to pay as the price of a barrel.

To qualify as a “material” business for Shell, renewables would need to generate annual profits of more than $250m a year. “We will put a lot of pots on the fire and if one starts to boil nicely, we will increase the size of the pot,” Mr van der Veer said.

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