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Daily Mail: Sea change for Shell over its oil reserves

Sea change for Shell over its oil reserves
Lucy Farndon
Daily Mail – London: KRTBN; May 05, 2006

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Shell beat expectations and surpassed its rival BP with first-quarter profits of GBP3.3bn, up 12pc, but enthusiasm was dampened by concerns about its oil reserves.

The Anglo-Dutch energy giant is no longer targeting a 100pc reserve replacement — which means it will not match existing production with new oil finds. It also said higher costs may cause projects to be put on hold.

The comments fuelled concerns about its poor record of finding oil and gas, following the 2004 scandal when it admitted that reserves had been overestimated.

But a strong oil price has helped the company get back on track. Chief executive Jeroen van der Veer says three quarters of this year's GBP10bn investment plan will go on exploration projects.

Van der Veer refused to predict where sky-high oil prices, currently at $72 a barrel, will head next.

He added: “From a consumer point of view we have to realise that volatility of prices can be quite damaging.”

For Shell, a high price boosts production profits but hits its chemicals division and petrol forecourts.

Shell's B shares rose 2p to 1950. The dividend was raised by 9pc to 17p and share buybacks will increase.

Profits would have been stronger were it not for political strife in Nigeria and hurricane damage in the Gulf of Mexico.

Iraq is also a no-go area, although Shell has done some research projects.

Van der Veer said supply and demand fundamentals do not justify such a high oil price, pointing out that “there is nobody waiting at a gasoline station due to a shortage.”

He implied that the $100bn of speculative funds in the oil market is to blame for the hike.

Shell is cautious and plans to “stress test” developments based on an oil price in “the twenties.”

Van der Veer said: “As Americans say, I do not like to lose my shirt.”

It is on track to produce 3.5m barrels per day in 2005, rising to between 4.5m-5m barrels in 2014.

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