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AFX News: Shell update on capex, Athabasca project to highlight Q2 results

LONDON (AFX) – Investors will scrutinise Royal Dutch Shell PLC”s production and capital spending plans in the light of delays in key projects and cost overruns at the 7.3 bln cad Athabasca oil sands project in Canada on Thursday when it is expected to report bumper second quarter earnings.

The market keenly awaits an update on the cost issues at Athabasca after Shell warned early this month that spiraling prices of equipment, labour and supplies will further jack up budget for the project.

Shell Canada, which is majority owned by the PLC, owns a 60 pct stake in the Canadian field, while Chevron Canada Ltd and Western Oil each holds 20 pct.

Shell is also considering building a coal-to-liquids plant in China with partner Shenhua Ningxia Coal Industry Co Ltd. The facility, which will be designed to produce 70,000 barrels of oil and chemical products each day, is estimated to be worth at least 6 bln usd.

“This new amount could mean either an increase in capex post-2007, or a downgrade in the production profile following a decision to delay/cancel some project where it would be tough to guarantee profitability,” said Societe Generale in a research note.

Shell told investors in May that it will be delaying some projects due to cost pressures brought about by soaring oil prices.

Analysts believe these factors are likely to further undermine the oil major”s plans to build volumes to 4.5-5.0 mln barrels of oil equivalent per day by 2014.

Shell hopes to start pumping 3.5-3.8 mln boepd in 2007, and 3.8-4.0 mln boepd in 2009. It reduced its 2006 guidance to 3.5-3.6 mln boepd from 3.5-3.8 mln due to production disruptions related to the civil unrest in Nigeria and hurricanes in the US. Output fell 3 pct to 3.746 mln boepd in the first quarter.

Shell has set aside 19 bln usd for capital spending in 2006 and 21 bln usd for 2007.
For the quarter to June, the group”s net income, on an adjusted current cost of supply basis, is forecast to rise to 6.125 bln usd from 4.626 bln last time, as high oil and gas prices more than offset the impact of weak volumes.

Volumes are likely to have fallen again by 3 pct in the quarter to 3.42 mln boepd from 3.526 mln previously.

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